How Enduring Power of Attorney works in Hong Kong and why it is useful
Hong Kong’s population is rapidly ageing, posing many legal challenges for families with loved ones with deteriorating mental capacity. Hence, having an Enduring Power of Attorney (EPA) can be an economical way to protect one’s assets if they become mentally incapacitated. Here is everything you need to know about obtaining an EPA and why it is needed.
What is an Enduring Power of Attorney (EPA)?
An EPA is a legal instrument that enables a donor to appoint their desired attorney(s) in managing their financial affairs in an applicable jurisdiction.
How is an EPA different from a typical Power of Attorney and a Will; and why should one have an EPA?
A typical Power of Attorney is revoked when the donor loses capacity, and a Will only takes effect when the testator dies. With life expectancy increasing globally, there is increased possibility that one might live through a prolonged period despite experiencing deteriorating mental capacity. During this period, if an attorney has been appointed under a valid EPA, that attorney would have the authority to act on behalf of the incapacitated person to manage their financial affairs. Without an EPA, a Court order (which is expensive and lengthy) would usually need to be obtained before any person has access to the finances of the incapacitated person.
What are the legal requirements of an EPA?
In Hong Kong, the application of EPA is governed by the Enduring Power of Attorney Ordinance (Cap. 501). To create an EPA, an instrument, which (1) confers on an attorney the authority to act in relation to the donor’s property and their financial affairs in Hong Kong; (2) specifies the particular matters, properties or affairs in relation to which the attorney has the authority to act, and (3) follows a statutory prescribed form (s. 3) must first be prepared. The donor must sign the instrument before a registered medical practitioner and a solicitor (s. 5(2)(a)(i)), who are not the intended attorney, the attorney’s spouse, or a person related by blood or marriage to the donor or the attorney (s. 5(2)(aa)). The registered medical practitioner and the solicitor will then carry out the necessary certifications (ss. 5(2)(d) and 5(2)(e)), and the attorney must sign the instrument as well (s. 5(2)(c)).
When does an EPA come into effect?
The EPA commences on the date specified in the instrument (usually specified as the date when the attorney has reasons to believe that the donor is becoming mentally incapable) or the date of execution (s. 10(1)) if not specified.
What duties does the attorney have and to whom are they owed to?
After an EPA has been created, the attorney owes a fiduciary duty to the donor (s. 12(1)) to exercise powers honestly and with due diligence, to keep proper accounts, not to enter transactions where conflicts of interests with donor would arise, and not to mix the donor’s properties with other properties (s. 12(2)).
Why and when should an EPA be registered at Court?
Once the donor becomes incapacitated, the attorney appointed under the EPA will not have the authority to act unless the EPA has been registered at Court (s.4(3)).The law requires that if the attorney has reason to believe the donor is or is becoming mentally incapable, they must apply to the Registrar of the High Court (s. 9(1)) for registration of the instrument creating the EPA (s. 4(2)). Before the attorney applies to register the EPA, the donor and persons nominated by the donor should receive notification of the application and may raise objections to the registration (s18(3)).
The law therefore sets out the latest point in time for registration of the EPA, but not the earliest. It is possible for the EPA to be registered earlier, even if the EPA is specified to take effect only after incapacity. The advantages for earlier registration are to ensure that the EPA becomes registered with any defects or queries raised by the Court dealt with while the donor should still have capacity. However, earlier registration also undermines the safeguards to prevent abuse; if the attorney attempts to act under the EPA before the donor is incapacitated and breaches their duties, the donor or persons who are to receive notifications of registration would no longer receive any further notifications and therefore may not be able to raise objections to cancel the registration and stop the attorney from acting in a timely manner.
Once registered, the record that an EPA is created by the donor, and the name of the attorney becomes public information.
The registration does not validate an EPA which is invalid (s.9 (7)). An instrument will be registered if it purports to create an EPA, complies with the rules for registration under the EPAO, and the registration fee has been paid (s.9(2)). The Registrar exercising administration function is not required to determine whether the scope of powers conferred on the attorney is valid.
To what extent can the attorney apply the assets of the donor under an EPA?
In Hong Kong, the EPA only empowers the attorney to deal with the property and financial affairs (as opposed to the health and welfare) of the donor (s.8(1)). There is no clear definition of ‘financial affairs’ in the EPAO. The attorney may apply the assets of the donor to maintain the donor, prevent loss to estate of the donor, to maintain the attorney or other persons to the extent which the donor is expected to provide for the needs of such persons; and to make limited seasonal gifts or gifts to persons related or connected to the donor (s.8(3)). An EPA which attempts to confer powers which exceeds the matters set out in s.8 (3) (e.g. empowering an attorney to fund a discretionary trust settled by the donor) may be considered invalid by the Court, and the list of powers granted under an EPA should be carefully drafted if the standard provisions are not to be followed. One should be reminded that registration of the EPA does not signify that the powers listed in the instrument are valid and challenges to the scope of powers may still be made to Court.
Can a registered EPA be revoked?
An EPA can be revoked by the donor when they are still mentally capable, or after their recovery; otherwise, it can only be revoked on limited grounds, such as the bankruptcy of attorney, the death of attorney or donor, and pursuant to Court orders or directions (s.13(1)). Even if the attorney sought to disclaim their powers, the EPA is not revoked once the donor becomes incapacitated, unless the attorney applies to the Court, and the Court confirms so (s.17(a)).
What happens if the attorney abuses their powers AFTER the donor has become incapacitated?
If the attorney abuses their powers, intermeddling the donor’s properties with their own and not acting in the best interest of the donor, it is open for an applicant to make an application to the Court to revoke the EPA and remove the attorney. Although the merits of each application will depend on the circumstances of that individual case, the applicant would need to show good and cogent evidence to support their application as the Court generally would like to keep and maintain the validity of the EPA and its appointed attorney since they are consciously chosen to appoint to act.
The application for revocation of the EPA and the removal of the attorney may be made by any “interested party” (s.11 of the Enduring Power of Attorney Ordinance (Cap 501)). Although the term “interested party” is not defined in the ordinance, it generally includes any person who may be prejudiced by the wrongdoing of the attorney, such as a beneficiary of the estate on the death of the donor.
What should happen to the donor’s financial affairs if the only attorney was removed?
If the attorney under the EPA breaches their duties owed towards the donor and is unfit to act and has been removed, or if no EPA is put in place, it is prudent and wise that an application be made to the Court for the appointment of a Committee under Part II of the Mental Health Ordinance (Cap 136) to manage the mentally incapacitated person’s (or the then donor) (“MIP”) property and affairs as otherwise no one is in the position to do so. A Part II Committee can be made up of more than one committee member. The committee is usually the MIP’s closest family members or business associates since they already have some knowledge of the MIP’s financials and affairs and are therefore best suited to act in such capacity.
The applicant of a Part II Committee application can be the relative of the MIP or if no such application is made by the relative then by the Director of Social Welfare, the Official Solicitor or the guardian of that person (s.7(3) of the Mental Health Ordinance (Cap 136)).
Why is an EPA better than a Part II Committee?
The key advantage of an EPA is that the attorney under an EPA is appointed according to the donor’s wish, who, should under the normal circumstances, be someone that the donor trusts. A Part II Committee and its composition, however, is decided by the Court and could therefore be anyone whom the Court, not the MIP, thinks proper. An EPA is also more affordable compared to an application for setting up a Part II Committee, even if the same is not contested.
This article was first published in The Hong Kong Lawyer.