KOI (Enduring Powers)
[2011] TASGAB 7
•20 June 2011
GUARDIANSHIP AND ADMINISTRATION BOARD
HOBART
KOI – Request for advice and direction by an attorney appointed under an enduring power of attorney
REASONS FOR DECISION
Anita Smith (President)
20 June 2011
Enduring power of attorney – request by attorney for advice and directions – attorney seeking approval to surrender the donor’s life interest – attorney one of 3 beneficiaries of the remainder of the estate – relevance of testator’s purported wishes – best interests of the donor – fiduciary duties of an attorney – conflicts of interest
Powers of Attorney Act 2000 sections 31, 32, 35
Guardianship and Administration Act 1995 section 6
KOI (the donor) is an eighty one year old man who has recently moved to full time residential aged care. His attorney has sought the Board’s approval to the terms of a draft deed of family arrangement which would surrender his interest and entitlement to the use and enjoyment of the proceeds of sale of a property in which he had a life interest.
The donor has three adult children, HI, NI and TQ. On 13 July 2004 the donor appointed HI as his attorney under a registered enduring power of attorney PAXXXX. A handwritten report by Dr. Richard E. Bourke dated 30 March 2011 states that the donor has significant Alzheimer’s type dementia and is incapable of making informed decisions. Hence, the power is active in its enduring phase.
The donor and his late wife owned their family home at Hobart (the property) initially as joint tenants, but at his late wife’s request the joint tenancy was severed and they became owners as tenants in common. Mrs. I died on 2 June 2004. Her will made in May 2002 appoints the Public Trustee as her executor and trustee and states:
“as to all the interest over which I have a power of disposition in the principal residence owned by me at my death to permit my husband KOI to have the use and occupation and enjoyment thereof until his death or remarriage … AND UPON the death of remarriage of my said husband the same shall fall into and form part of the residue of my estate.
The residue of her estate is gifted equally to their three children.
The donor lived in the property until September 2009. For 18 months after that date he lived with TQ who provided care for him until he moved to a residential aged care facility. In January 2011 the property was sold. Half of the proceeds of sale were paid to the donor. His attorney has invested those funds in a 6 month term deposit. The balance sale proceeds ($174,708.65) are being held by the Public Trustee in accordance with the terms of Mrs. I’s will. It is proposed that the attorney surrender, on the donor’s behalf, the donor’s interest in that sum; meaning that the three children (including the attorney) would each receive $58,236. 21. This is the transaction for which the attorney has sought the Board’s approval.
Section 35 of the Powers of Attorney Act 2000 provides:
“(1) An attorney under an enduring power of attorney may apply for advice or direction by the Board on any matter relating to the scope of his or her appointment as such or the exercise of any power by the attorney under the enduring power of attorney.
(2) An application under subsection (1) may be made in accordance with section 34 or informally.
(3) The Board may require notice of an application under subsection (1) to be given to any person that the Board directs and may exercise its powers under this section without a hearing.
(4) The Board may –
(a) approve or disapprove of any act proposed to be done by the attorney; and
(b) give such advice or direction as it considers appropriate; and
(c) vary the effect of the enduring power of attorney or make any other order that it could have made on an application under section 33.
(5) …”
The Act does not specifically prescribe conditions for the exercise of the power to give advice and directions. However, the following provisions provide parameters for the Board’s consideration:
Section 32 Powers of Attorney Act 2000
“Duties of attorney under enduring power of attorney
(1) An attorney under an enduring power of attorney, during any period of mental incapacity of the donor –
(a) is taken to be a trustee of the property and affairs of the donor according to the tenor of the power; and
(b) must exercise his or her powers as attorney to protect the interests of the donor –
and, if he or she fails to do so, is liable to compensate the donor for any loss occasioned by the failure.
(2) ...”
Section 6 Guardianship and Administration Act 1995
“6. Principles to be observed
A function or power conferred, or duty imposed, by this Act is to be performed so that –
(a) the means which is the least restrictive of a person's freedom of decision and action as is possible in the circumstances is adopted; and
(b) the best interests of a person with a disability or in respect of whom an application is made under this Act are promoted; and
(c) the wishes of a person with a disability or in respect of whom an application is made under this Act are, if possible, carried into effect.”
Consideration of the reasons for the application:
Four reasons were advanced by the attorney for the surrender of the donor’s interest: Firstly a desire to see the late Mrs. I’s estate wound up. Secondly, that the donor has independent means and, being well cared for, has no present or future need of the funds. Thirdly, that the distribution of funds to the three children would have been consistent with the late Mrs. I’s wishes. Fourthly, it was asserted that the funds were not generating sufficient interest and the fees charged by the Public Trustee are too high. None of the three children had any particular need of the early distribution of funds, each stating that it would be used to reduce mortgages or bring forward retirement plans but none indicated any particular financial pressures or concerns. Hence the needs of the potential beneficiaries were not advanced as a reason for the surrender.
The Board noted that the executor has no concerns about the continuation of the estate until the donor’s death. The attorney indicated that there had been some difficulties (not specified) between the beneficiaries and the executor in the past, but the desire to wind up the estate was not necessarily related to these difficulties but rather a desire for completion.
With regards to the late Mrs. I’s wishes, the Board heard evidence that she had severed the joint tenancy at a time when she and the donor were experiencing marriage difficulties. The severance of the joint tenancy also arose because she witnessed close family members who lost entitlements to their parent’s estates when one parent remarried after having assumed the right of survivorship in a former joint tenancy.
The attorney and Mrs. TQ each gave evidence that the late Mrs. I meant for her husband to have a right of residence, not a life estate, so that the children could inherit from her when he left the home. This evidence was given little weight by the Board for two reasons. Firstly, the will was professionally prepared by the Public Trustee and clearly provides for a life tenancy not a right of residence. The Board accepts the will as evidence of her wishes over and above the assertions of her intentions made by interested third parties. Secondly, the Board must consider the donor’s wishes. The wishes of the donor’s late wife do not have great weight in these proceedings.
As to the assertion that the donor has no need of the funds, that appears to be the case. He is in receipt of a Retirement Benefits Fund pension which meets his accommodation costs and incidental costs of care. He has been assessed as “high care” and is not required to pay an accommodation bond. He has two term deposits, one of $174, 708.65 (as noted above) and another of $103,000.00. He has no liabilities. Whether a lack of need for the funds is a reason to surrender an interest will be considered further in paragraph 18 and 19 of this decision. However, the access to ample funds for his needs would mean that surrendering his life interest in the estate would not have any impact upon his freedom of decision and action.
Whether the sale proceeds could be invested in a fund that could generate more interest and charge lower fees than the Public Trustee relates to the management of Mrs. I’s estate. The residuary beneficiaries would have the ability to challenge the investment decisions of the trustee or to seek appointment of an alternative trustee through Supreme Court actions. However, if the draft deed is approved by the Board, the funds may generate better interest but they will be invested for the benefit of the residuary beneficiaries, not for the donor. The Board took the view that this argument did not advance the attorney’s application.
None of the reasons advanced for the application were convincing.
What are the donor’s wishes?
Although asked in different ways by the Board, the attorney and Mrs. Q, the donor was unable to reliably express any wishes and demonstrated at the hearing no understanding of the discussion. When asked in the simplest of terms whether if he had $60,000 to give to each of his children, would he do so, he merely said “Why not?” The Board did not consider that response to be overwhelming evidence of his wishes.
The duties of an attorney:
Section 32 imposes a heavy duty upon an attorney to act like a trustee of the property and affairs of the donor and to act in the donor’s best interests. A trustee must exercise the care, diligence and skill that a prudent person of business would exercise in managing the affairs of another person. The trustee relationship imposes a fiduciary duty upon the attorney, that is, a duty to exercise rights and powers in good faith or for the benefit of the donor. A person in a fiduciary position ought not to make a personal profit or to put himself in a position where his duty and his interest conflict.
The attorney objected to the assumption that he had a conflict of interests in acting as an attorney and advancing the idea of the surrender of the donor’s life interest. Mr. James Oakley provided legal advice that he did not have a conflict of interest. Sadly, Mr. Oakley did not, in his letter of advice, set out any foundation or authority for that conclusion. In any event the Board rejects that assertion. There appears to be no other conclusion that an attorney who seeks to surrender the donor’s interest in an estate, when the attorney will directly benefit from that surrender has a conflict of interest.
Section 31(3) of the Powers of Attorney Act 2000 allows an attorney to give away property of the donor to close friends or relatives of the donor where the gift is a donation of the nature that the donor made when the donor had mental capacity or that the donor might reasonably be expected to make. Such a gift must be reasonable having regard to the circumstances and the donor’s financial circumstances. An attorney is not precluded from gifting to himself. Section 31(3) appears to directly conflict with the duties of an attorney set out in section 32. There was no evidence before the Board that the donor had ever made similar gifts or that there was any reasonable expectation that he should do so.
Would executing the deed of family arrangement be in the donor’s best interests?
There is no evidence that executing the deed of family arrangement will advance the donor’s interests in any way. Therefore, it does not represent a prudent decision by an attorney to surrender a life interest which may earn approximately $7000 income in the first year. The assertion that he has no need of the extra income or any use for the principal sum is noted. However, the life interest represents an opportunity for the donor’s estate to grow.
The Board is presented in this case with two public policy issues. On one hand, the Board sees that this attorney has applied the correct process in seeking the Board’s advice and direction. The Board does not wish to discourage future applications by attorneys to clarify conflict of interest issues. Such applications are protective of the donor’s interests and a proper discharge of the Board’s and the attorney’s responsibilities. On the other hand, the Board sees instances of elderly persons being deprived of significant assets because their adult children consider that they have no need of the funds. See for instance the Board’s decision in EKN (Administration) [2010] TASGAB 9. While the attorney’s actions in this matter have been far more appropriate than the administrator in EKN, the motivation, that an elderly disabled person has no need of funds and their adult offspring might put it to better use, remains the same. Ultimately, it is not a motive that the Board can support.
Conclusion:
The Board does not approve the execution by the attorney of the draft deed of family arrangement.
Anita Smith
PRESIDENT
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