Property Trap in Power of Attorney
If you are using a Power of Attorney to sell property, it would be wise make sure it is dated after 16 February 2004.
If not you should update the Power of Attorney if possible, as failure to do so could cause unforeseen problems.
The reason can be seen in the following example:
In her Will, Anne leaves her house to her son John and the balance of her estate to her daughter Jenny. She also appoints John as her attorney. The documents are dated before 16 February 2004.
In early 2014 Anne moves to a nursing home as a result of loss of capacity after being diagnosed with dementia. John uses the Power of Attorney to sell his mother's house and uses the money to pay the accommodation bond at the nursing home.
At the beginning of 2015 Anne passes away. John expect to receive the refund of the accommodation bond because the proceeds of sale of the house (which he was to receive in Anne's Will) have been used to pay the accommodation bond.
However, as the house has been sold, the specific gift of the house to him is considered to have failed (ie: is no longer possible) and the whole of the estate (including the accommodation bond) will now go to his sister Jenny. It has been "adeemed" at common law.
(Ademption by extinction is a common law doctrine used in the law of Wills to determine what happens when property bequeathed under a Will is no longer in the testator's estate at the time of the testator's death).
Such an outcome is a very harsh result for John, and clearly not in the spirit of his mother's wish for her estate to be divided between her two children.
However Section 22(1) of the Powers of Attorney Act 2003 now solves problems such as this.
The section states: "Any person who is named as a beneficiary under the Will of a deceased principal who executed an enduring power of attorney has the same interest in any surplus money or other property arising from any sale, or any property or other dealing with property by the attorney under the Power of Attorney as the named beneficiary would have had in the property the subject of the sale or dealing, if no sale or dealing had been made."
The solution is simple. If a Power of Attorney is dated before 16 February 2004 when Section 22(1) of the Power of Attorney Act 2003 came into force, arrange for it to be updated immediately if at all possible.
If you, your family or friends wish to enquire about a similar circumstance, please email us on our "Ask Us a Question" feature or call (02) 4228 8288 to speak to one of our specialist compensation lawyers.