An Enduring Power of Attorney (“EPOA”) is a legal instrument that enables a person (i.e. a donor), while still mentally capable, to appoint another person (i.e. an attorney) to act on behalf of him/her to manage their property and/or financial affairs when he or she later becomes mentally incapacitated.
Our previous article Enduring Power of Attorney: Sound Advice for the Unsound Mind! explains why an EPOA is necessary and the benefits of having an EPOA in place for one’s estate planning. Today, we will navigate through some important features in the EPOA and some practical considerations a donor should think about when preparing an EPOA.
Who should be appointed as your attorney under the EPOA?
Being an attorney under an EPOA for someone is an onerous role, as he has a duty and an obligation to act in the donor’s best interest.
Under section 12(2) of the Enduring Powers of Attorney Ordinance, Cap. 501 (“EPOAO”), the attorney under an enduring power has a duty to:
- exercise his powers honestly and with due diligence;
- keep proper accounts and records;
- not to enter into any transaction where a conflict of interest would arise with the donor; and
- not to mix the property of the donor with other property.
Your attorney will have the authority to manage your financial affairs and properties in the event of mental incapacity on behalf of you in accordance with what is written in the EPOA. Unlike a general power of attorney or a specific power of attorney that will cease to have effect as soon as its donor becomes mentally incapacitated, the EPOA will continue to be in effect. It is advised to appoint someone who you trust as your attorney, such as your immediate family members (e.g. spouse, children, close siblings etc.).
If one decides to appoint more than one attorney, the following practical issues should be considered:-
- Attorneys acting Jointly OR Jointly and Severally
Attorneys acting jointly must act together and cannot act separately, and attorneys acting jointly and severally can act together but can also act separately if they wish.
There is no definite answer of which one prevails over the other, as it depends on various factors such as who the attorneys are and whether the donor would want to achieve a check and balance between the attorneys.
- Relationship between the attorneys
It is advised that the appointed attorneys should have a harmonious relationship, so that even when differences occur in managing the donor’s property or financial affairs, they will still be able to resolve their differences amicably and act in the donor’s best interest.
- Number of the attorneys
It is advised that the number of attorneys should not be more than three, as the more people involved in the decision-making process, the longer the administration process of managing the donor’s property or financial affairs will be, and thus there may be failure to act in the best interests of the donor.
Attorney’s Authority
In the EPOA, the donor can decide the attorney’s authority over his property or financial affairs.
It is common that the donor would give the “usual” authority to his attorney such as to collect and spend any income, collect and spend any capital, sell movable property and sell, lease or surrender any of the immovable property (see Paragraph 2(1)(a)-(f) in Schedule 1 of the Prescribed Form 1 and Paragraph 3(1)(a)-(f) in Schedule 2 of the Prescribed Form 2 of the EPOAO). Although the “usual” authority given to the attorney under an EPOA is somewhat similar to that of the authority given under a general power of attorney and/or a specific power of attorney, it is important to highlight that the funds utilised by the attorney under an EPOA should be exclusively used for the donor’s maintenance and management purposes. This aims to protect the donor’s interests and prevents any misuse of their assets.
Some, however, may wish to confer authority to the attorney only for certain property or financial affairs. In that case, it is advised that the donor should always specify clearly in the EPOA which property or financial affairs the attorney has the power to deal with and what the attorney can do in relation to that property or financial affairs.
For example, in relation to immovable property, the donor should clearly state the address of the immovable property for easy identification, and the power given to the attorney (e.g. to manage and to let rent out or lease the property, to demand sue for and receive all rents and arrears of rent of the property, etc.).
Restrictions on Attorney
The most common restriction stated in the EPOA is that the attorney cannot act on behalf of the donor until the donor has been diagnosed by a Hong Kong registered medical practitioner to have any form of mental incapacity. The purpose of such restriction is to prevent the attorney’s abuse of power when the donor has not yet become mentally incapacitated.
Depending on the extent of the donor’s property, the donor may wish to add further restrictions under the EPOA.
Registration of the EPOA
Why should the EPOA be registered?
Section 4(3) of the EPOAO provides that the attorney is not allowed to do anything under the authority given in the EPOA unless or until the EPOA is registered at the Registrar of the High Court of Hong Kong.
Who should be notified of the registration?
A section is included in the EPOA where the donor can specify whether he or she or any individuals that he or she nominated would like to be notified before the registration of the EPOA by the attorney (Section 18(3) of EPOAO). Although there is no statutory requirement for the attorney to notify the donor, it is advised that notification should be necessary before registration.
This mechanism allows the donor and/or any nominated individuals to raise objections of the registration if they are not agreeable to the registration and therefore prevents potential abuse of power by the attorney.
The donor, other than himself/herself or any of the attorneys, can nominate up to two persons to be notified (Regulation 6 of the Enduring Powers of Attorney (Prescribed Form) Regulations (Cap. 501A)). It is advised that the two persons should be your immediate family members.
When should the EPOA be registered?
The EPOAO does not stipulate when the EPOA should be registered.
Section 4(2) of the EPOAO only states that the attorney should register the EPOA “as soon as practicable” when he has reason to believe that the donor is or is becoming mentally incapable. The EPOAO therefore does not preclude “early” registration of the EPOA by the attorney while the donor is still mentally sound, notwithstanding the EPOA takes effect only after the donor becomes mentally incapacitated.
The advantage of early registration is that the donor can address any issues raised by the Registrar when he/she is still mentally sound and correct the defects accordingly.
Early registration, however, has the following disadvantages:-
- It could weaken the mechanism to prevent abuse, because once registered, the donor and/or any nominated individuals will not receive any further notifications if the attorney decides to act under the EPOA and therefore fail to object the attorney’s improper act.
- It is not a straightforward process to revoke a registered EPOA. Provided that the donor is still mentally capable, if he wants to revoke the registered EPOA, he needs to make a court application for the revocation and the court will make an order to confirm the said revocation. This is a timely process and will certainly incur legal fees.
It is to be noted that section 17(a) of the EPOAO specifically provides that a disclaimer by the attorney does not revoke his or her power under the EPOA.
- It becomes public information. This may raise certain confidentiality issues and concerns as section 9(5)(b) of the EPOAO permits any person to inspect the EPOA and obtain copies of it.
Defending the Donor’s interests: Section 11 of the EPOAO
An “interested party” can rely on section 11 of the EPOAO, to make a court application to request the attorney to produce any records and accounts and seek a court order to remove the attorney and revoke the EPOA if the attorney abuses their powers and does not act in the donor’s best interests. “Interested party”, however, is not defined in EPOAO.
Generally, an “interested party” includes someone who may be prejudiced by the attorney’s misconduct (e.g. the beneficiary of the estate on the death of the donor).
Nevertheless, in FNG v BCJ [2021] HKCA 160, the court stated that the power under section 11 of the EPOAO “can be invoked by an interested party who needs not be a person having any claims to the estate of the donor”. In Wong Chi Ho Jimmy v Wong Oi Lun, by Stephen Liu Yiu Keung, Koo Chi Sum and Andrew Koo Chi Ho, her guardians ad litem and Wong Tai Wai David Jasper [2020] HKCFI 1073 (HCMP 1672/2016), the court also turned down an argument that an “interested party” must be a party to whom the attorney owes a duty to account.
However, it is important to emphasize that the purpose of section 11 of the EPOAO is to serve the interests of the donor, not the personal interest of an “interested party”.
Takeaways
- When appointing an attorney under the EPOA, it is important to choose someone trustworthy who will act in the donor’s best interests. If multiple attorneys are appointed, considerations should be given as to whether they will act jointly or jointly and severally.
- The attorney’s authority over the donor’s property or financial affairs and the restrictions of the attorneys should be clearly specified.
- The EPOA should be registered with the Registrar of the High Court for the attorney to have legal authority. However, when the EPOA should be registered is a consideration to take into account. Early registration may weaken safeguards against abuse and raise confidentiality concerns. However, early registration may also allow for issues or questions raised by the Court regarding the EPOA to be addressed while the donor still has the capacity to do so.
To tackle the issue of when to register, it is advised that after execution of the EPOA, the donor may choose a law firm to keep custody of the EPOA. In the event the attorney suspects the donor is or will become mentally incapacitated, he or she can approach the law firm with the original medical assessment certified by the Hong Kong registered medical practitioner confirming the mental incapacity of the donor and collect the original signed EPOA and apply for registration.
By implementing these measures, individuals can help minimize the risk of abuse and ensure that the EPOA operates in the best interests of the donor, even in situations where early registration is considered.
Every situation is different and needs bespoke advice, so please do not hesitate to contact our Private Client, Probate & Trust team for specific enquiries.
This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.
