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Letters for Lawyers Powers of Attorney

Author: Garry Barnsley

Powers of Attorney NSW includes letters, forms and a guide canvassing both the law and reviewing new legislation regarding enduring powers of attorney. Included are 14 chapters and 18 precedents.

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More than One Attorney

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MORE THAN ONE ATTORNEY

SEVERALLY, JOINTLY AND SEVERALLY, OR JOINTLY?

Taken at face value, the prescribed form of power of attorney seems to offer the principal only two choices when the principal wants to appoint more than one attorney:

4  If I appoint more than one attorney, then I appoint them jointly and severally.

[Cross out “and severally” if you want your power of attorney to operate only when both attorneys act together and are both living.  You should get legal advice on changing this clause]

If the NSW form as printed is the be-all-and-end-all, then it works to exclude severally as a discrete choice. 

Similarly, the English legislation [1] mandates only two choices: jointly or jointly and severally (Enduring Power of Attorney Act 1985 section 11 (1)).  The third choice, severally, is not an option there.  According to their Act, the prescribed form is sacrosanct.

You may wonder why it matters, just as you may wonder why two attorneys would choose to come together, perhaps over long distance and at considerable personal inconvenience, both to sign the same piece of paper.  Why bother to do so when either of them has full power to sign in the name of the principal, so as to bind both the principal and the fellow attorney (assuming they are not in dispute between themselves, with one moving swiftly to try to counter the action of the other)?

Let’s imagine a situation where one of the attorneys, appointed jointly and severally, is down on his luck and determined to get an advance on his inheritance.  He won’t be signalling his punches to his fellow attorney any more than to his principal.

That’s where a joint appointment offers the best hope of providing checks and balances against the risk of abuse of the power.

Now, imagine a typical enduring power of attorney made by Mum and Dad at the same time:  they want to appoint each other to act severally, recognising mutual trust generated by long years of blissful cohabitation.

Then, they think about what could happen if one of them ‘goes first’ leaving the other without an attorney, and possibly in such a state of deteriorated mental capacity as to be without the opportunity to revisit the question of who to appoint in their deceased spouse’s place.

My practice, under the old Act[2], was to appoint several attorneys and joint  attorneys in the one instrument. This allowed the spouses to act severally during their joint lifetimes, but, say, any two out of three adult children could act too, but only jointly.  It might be unspoken but well understood that the children would act only if one or other of their parents was no longer around, and then only subject to the constraint that at least two must come together as joint attorneys to act for the surviving parent.  

Section 46 of the new Act throws a conspicuous spanner in these carefully constructed works.

Firstly, it is now expressly stated in the new legislation (section 46(1)) that if a power of attorney appoints two or more persons as joint attorneys, the power of attorney is terminated if the office of one or more of the joint attorneys becomes vacant. 

This restates the common law, based on the notion that the principal’s choice of attorneys is a solemn and deliberative act, and reflects the special relationship of trust that exists between the donor and the donees.

So, if a joint attorney dies or becomes mentally or physically incapable that severs the fiduciary relationship, and the whole thing falls to the ground – and never mind the inconvenience of leaving the principal without any attorney at all.

Secondly, however, section 46(2) goes on to say that if a power of attorney appoints two or more persons as attorneys either severally or jointly and severally, a vacancy in the office of one or more attorneys does not operate to terminate the power of attorney in relation to the other attorneys.

Section 46(2) therefore lets us know that, after all, the intention of the legislature was to allow appointments of multiple attorneys severally even though paragraph 4 of the prescribed form leaves us to think otherwise; the bracketed note, presumably, was intended to have these words added by implication:

Cross out ‘jointly and’ if you want your power of attorney to be operated by any one of your attorneys.

As you’ll recall, this is most definitely not permissible under the English law.

The real problem with the general law and section 46 is twofold:-

  • Firstly, the risk that a joint attorney may die or become incapable, leaving the principal potentially in a state of incapacity, and suddenly without any attorney to carry on the administration of the principal’s financial affairs.
  • Secondly, it compels, as the obvious precaution, the appointment of multiple attorneys to be allowed to act severally, (or jointly and severally) and that raises the risk of the rogue attorney colourfully illustrated earlier.

How could this have been avoided?  Simply by prefacing section 46 with words such as ‘Unless the principal says otherwise in the instrument appointing the attorneys…’.

It would have been better, in any case, to put a note in the 'important information' section to state clearly the effect of section 46.  As it is, the only opportunity for the lay reader to glean this important fact from the document reposes in the marginal note to clause 4 of the form.  Its deletion, as a normal incident of deploying the form, poses the risk that, as a transcription, a valuable piece of intelligence gets lost.  For this reason, I have added an extra ‘important note’ to my version of the form, stating the full effect of section 46 (and equally importantly, the definition of when a vacancy in the office of an attorney happens).

Having educated our clients over a long time about the difference between joint tenancy and tenancy in common in relation to real estate, and drilled them to know that joint ownership, as distinct from co-ownership, is characterised by the phenomenon of the right of survivorship, section 46, even though it only restates the common law, sets a trap for the unwary.

Moreover, the death of a one executor does not terminate the opportunity for a surviving executor to carry on the executorship: "the office, with its incidents, duties and powers, and the estate and interest in all the property vested in the representatives by virtue of their office devolve upon the survivors or survivor".[3]

If you appoint two or more enduring guardians to act jointly, then the law allows you to provide that the death, resignation or incapacity of one or more appointees does not terminate the appointment of any other appointee[4] (Guardianship Act 1987 No 275 s 6D(4)).

In the open-ended world of law reform here was an opportunity missed: the law of attorneyship should have been brought into line with the expectations generated by these comparable offices.

I realise, of course that section 36(4)(d) of the Act allows the Supreme Court, or the Tribunal, to reinstate a lapsed power, but that is an expense and inconvenience that could have been easily avoided.

The really interesting question is whether an instrument granting a power of attorney to one attorney severally, and to two or more other attorneys jointly, written in one document, is totally destroyed by a vacancy in the office of one of the joint attorneys.

If the one document in truth creates two discrete appointments then the vacancy among the joint officeholders ought not to defeat the power granted to the sole attorney.  A close reading of section 46 fails to deal with this possibility.  On balance, I prefer to think that if the legislature has not addressed the question in the section, then the grant of power to the ‘several’ attorney survives. 

Others among my colleagues may prefer a more conservative opinion in which case it is possible for the principal to grant several different attorneyships on separate forms:-

(a)      Separate attorneys limited to particular powers.  A principal may choose to appoint several attorneys, not to act jointly, but granting to each attorney an individual power.  This would then be useful in a situation where the principal would like to permit a spouse to act solely for financial matters for sums of less than $10,000.  However, the principal may require the spouse to act jointly with the principal's solicitor for sums greater than this.

(b)      Cascading joint attorneys. As well as using the prescribed form to say how attorneys can act, it is also possible to decide when a power of attorney will become effective.

In situations involving large estates, consider the option of cascading power of attorneys.  If a principal deems it imperative that at least 2 people make a decision about all of his or her assets, a series of reserve powers of attorney could be drawn up, only to come into effect when the one above becomes redundant. 

Cascading Power of Attorneys

 


   

[1]      Enduring Power of Attorney Act 1985

[3]      Jollife v Fera [1973] 2 NSWLR 702.

[4]      Guardianship Act 1987 No 275 s 6D(4), see also Guardianship Amendment Act 2002 Schedule 1.



© Copyright Garry Barnsley, 2007, Sydney. All rights reserved.Last Updated: 25/06/2009


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