Private Client Explained: Powers of Attorney

A Power of Attorney allows a nominated individual to take certain actions or take decisions on someone’s behalf, in case they are no longer able or willing to do that themselves.

Q1. Are there different types of Power of Attorney?

With a Power of Attorney, you can elect a trusted person who acts as an attorney – most often a family member, a close friend or your solicitor – to help take decisions regarding financial and/or health matters. It needs to be set up while a person is still willing and able to make his/her own decisions and would only become effective upon specific circumstances. In Hong Kong, the matter is regulated according to the Powers of Attorney Ordinance, Cap. 31 and Enduring Powers of Attorney Ordinance, Cap. 501.

The different legal documents have distinctive characteristics:

• a General Power of Attorney (GPOA) is a useful tool when you need to grant someone authority to carry out actions for you for a temporary period, for example while you are out of the country for work reasons or on holiday. It becomes invalid upon the expiry, donor’s revocation, donor’s death or when he/she loses mental capacity. S7 of Power of Attorney Ordinance stipulates that a general power of attorney in the form set out in the Schedule shall operate to confer done power authority to do on behalf of the donor anything which he can lawfully do by an attorney.  Such a general power of attorney is very powerful, and often done very cheaply as it is a simple document, but it can be subject to abuse by the attorney. Hence the donor should be careful before signing a document of this nature;

• a Specific Power of Attorney (SPOA) can be limited to specific affairs or valid only for a specified length of time. The power of the attorney can be limited to taking certain action only but not other.  Same as a GPOA, it gets revoked upon expiry, revocation, death or if the donor loses mental capacity;
• an Enduring Power of Attorney (EPOA) will start to take effect when it is registered with the High Court, continue to have effect during the donor’s lifetime, including when an individual loses capacity to self-manage his/her own affairs and make important decisions about finance matters, until it is revoked.

Q2. Who can sign a Power of Attorney?

Anyone can sign a GPOA or a SPOA drafted by a solicitor and signed in from of him/her or in front of a Notary Public.

An EPOA is not a document you can make at home. In order for the EPOA to be valid, a registered medical practitioner and a solicitor will have to act as witnesses to certify the mental capacity of the donor when he/she executes the EPOA. Not all medical practitioners will sign an EPOA, so we often help to book appointments with medical practitioners who specialize in this area. Moreover, the execution of the EPOA can be a tricky matter and a mistake can be critical to the validity of the EPOA itself.

It is always advisable for a clinical psychiatrist who is qualified to assess a patient’s mental capacity to perform a mental capacity test before attesting his/her signing of EPOA. He or she should make contemporaneous note for conducting the test.

Q3. What EPOA advice do you usually give to your clients?

We almost always advise donors to include a restriction in the EPOA that the attorney must not act on his/her behalf until the attorney has reason to believe that donor is mentally incapable. The attorney must then apply to the Registrar of the High Court to register the EPOA. Registration will allow the appointed individual to make decisions for the donor after the latter has become mentally incapable. This means that a register of every EPOA in force is kept with the Court, meaning that it is open for public inspection. The intention behind this system is that the attorney’s activities can be monitored, granting an extra layer of protection. To give the donor additional comfort, the donor can state in the EPOA that he/she and other trusted persons must be notified before the attorney registers the EPOA in Court.

It is important to get specific legal advice when preparing the EPOA so that the donor fully appreciates the extent of the powers he/she is granting before considering who would be suitable to act on his/her behalf. Based on how the form is worded, the EPOA can give wider or more restricted powers. We have had clients who only gave authority to their attorney to deal with a particular account or particular piece of property. However, since the EPOA needs to be registered and hence, available for public search, other clients would rather not put their financial details in the form. Ultimately, it is a balancing exercise between different donor’s needs. It is also important to decide whether there should be more than one attorney and if more than one, whether they should act jointly or jointly and severally. Again, this is a balancing exercise that the donor needs to conduct after getting proper legal advice.

Professionals such as solicitors or accountants can act as attorneys.

Q4. What happens when there are properties or other financial assets located overseas?

Worth noting is that a Hong Kong EPOA will not be able to empower the attorney to handle the donor’s assets outside of Hong Kong due to its jurisdictional nature. So, if you have assets elsewhere, you might want to consider having another EPOA or similar legal instrument recognized in those jurisdictions. We often use our legal contacts based in other jurisdictions to achieve our clients’ goals in protecting overseas assets.

Q5: What are additional advantages of putting in place an EPOA?

In Hong Kong, if there is no EPOA in place, a family member can make an application under Part II of the Mental Health Ordinance, Cap. 136 to have the family members or professionals be appointed as the Committee to handle the financial affairs of the mentally incapacitated person. The costs for such application are higher than putting in place a proper and valid EPOA at the outset. For large families or families with estranged members, there’s a risk of fights over who should be appointed as the Committee. In the meantime, the interests of the mentally incapacitated person may be jeopardized. An EPOA is particularly helpful for someone who needs to constantly operate his/her account(s) or who has financial dependants. If given the power in the EPOA, a solicitor can even sell or lease the donor’s landed properties on the donor’s behalf.

Moreover, as Living Wills or Advance Health Directives still present some legal grey areas in terms of enforceability in Hong Kong, an EPOA can offer an extra layer of protection when life or death decisions need to be made.

Q6: Can someone with a Power of Attorney revoke or modify a Will?

While a Power of Attorney can be cancelled with a Deed of Revocation, a Will cannot be revoked or modified by the testator’s attorney. Only the testator of a Will can make changes to it. This becomes essential in case of mentally incapacitated individuals.

If there is any reason to make a Will or change one for a person who is mentally incapacitated, one should apply to Court to make a statutory Will.

Q7: Can a bank or financial institution refuse to honour a Power of Attorney?

Usually, there are some conditions imposed and any restrictions contained in the POA will be considered first. Other common requirements include:

• possessing the original POA or a certified copy of the same;
• suitable document of identification and address verification needs to be submitted;
• a sample signature may be required;
• if multiple attorneys are specified in the POA, then it is necessary to state if they act jointly or individually;

Q8: Would you say that setting up an EPOA is like buying an insurance policy in case of future mental incapacity?

Yes, definitely! Mental health problems can affect the way a person thinks, feels and behaves – this can also affect your loved ones.

The definition of “mentally incapacitated person” is a person who is incapable of managing or administering his or her property and affairs. Sometimes mental incapacity is immediately apparent, especially to family members. While other times mental incapacity may not be immediately noticeable and may worsen with time.

Some of our clients have faced situations where mentally vulnerable loved ones have been taken advantage of or manipulated by others into giving away their assets, which in extreme situations have led to bitter disputes involving costly and lengthy litigation. To avoid such unpleasant situations, it’s best to properly plan and protect your loved ones’ finances and interests accordingly.

EPOA is a cost effective solution to deal with the issue of managing financial affairs of vulnerable clients who may gradually lose mental capacity with age.