It is prudent to have your affairs in order, no matter what your current age or health. None of us can predict when we might be affected by an unexpected injury or illness, and it is far wiser to be prepared now than to rely on arrangements that might be made on your behalf in the future. 

In NSW there are two main ways you can make financial arrangements; a person can either utilise a number of informal arrangements which he or she puts in place (possibly with or without the assistance of family depending on the person's own capacity) or someone may apply to have a financial management order made on behalf of an incapable person.

Both the Supreme Court and the Guardianship Tribunal have powers under State legislation to make financial management orders so that a person’s financial affairs are subject to financial management under the NSW Trustee and Guardian Act 2009.

Financial managers have wide powers to contract on behalf of and deal with property of an incapable person. The protected person’s right to deal with his or her own property is suspended while the order is in place. It is for this reason that a financial management order will generally only be made if there is some goal which cannot be achieved by informal means and it is in the interests of the incapable person to do so.

If an incapable person owns a house or large investments, financial management should be considered. Whereas where the incapable person’s sole asset is a small bank account and his or her sole income is the pension, an application for financial management will generally not be required.

When should you use an informal arrangement?

Having an informal arrangement made now means you have peace of mind and will be sufficient in most circumstances for payments of day-to-day expenses and bills. Informal arrangements are usually less expensive to put in place and more convenient for the person acting on behalf of an incapable person. However, there may be risks with informal arrangements, such as the person with authority not acting honestly or in the best interests of the incapable person.

What are your options for informal financial management arrangements?

  1. Appointing alternative signatories to bank accounts. A person could make a trusted family member or close friend a signatory of their bank account.
  2. Arranging for the payment of the incapable person’s pension to a nominee. The Secretary of the Department of Human Services is empowered by Commonwealth legislation to authorise the whole or part of a person’s age and disability support pensions to be paid to a person on behalf of a pensioner. The “payment nominee” is usually a relative of a mentally incapable person.
  3. Making an Enduring Power of Attorney. A person with the requisite level of mental capacity can make a power of attorney which enables the attorney to deal with that person’s affairs within the terms set out in the power of attorney. As a general rule, if a person executes a power of attorney and then subsequently becomes mentally incapable, the power of attorney is terminated. However, an enduring power of attorney enables the attorney to continue to act despite the subsequent mental incapacity of the person who made the power of attorney.

What happens if a loved one is already incapable or the informal arrangements do not work out?

Where informal financial management arrangements are not working appropriately an application may need to be made for a financial management order. Either the NSW Trustee or anyone else who has a genuine concern for the welfare of a person may apply for a financial management order.

To ensure your loved ones' welfare and assets are protected in the event that they become incapable to act (either due to aging, accident or sudden illness) or as a precautionary measure in case current informal arrangements may cease to be appropriate at some future time for someone with already impaired capacity, it is important to put a plan into place now.