Hong Kong faces a significant challenge due to its rapidly ageing population. Academics predict a surge in dementia cases over the next 15 years. A study estimates that by 2039, 11 percent of the city’s population aged 60 and above will suffer from dementia. Unforeseen medical emergencies have disrupted some families’ financial management, causing additional stress.
This situation has led to an increasing number of families seeking legal advice and making arrangements for asset protection before the family heads become mentally incapacitated. An effective and economical solution is the Enduring Power of Attorney (EPA), which is increasingly being incorporated into asset management strategies. In most cases, an EPA minimises the likelihood of legal challenges arising from family disputes after the family heads have lost their mental capacity.
In Hong Kong, the EPA application is governed by the Enduring Power of Attorney Ordinance (Cap. 501). An EPA is a legal instrument that allows a donor to appoint their chosen attorney(s) to manage their financial affairs and property. However, an EPA implemented in Hong Kong only covers assets within the city.
Katie Graves, a Partner at Withersworldwide, an international law firm, says that one of the objectives of an EPA is to ensure that the donor and their immediate family are cared for in the same manner as when the donor still had full mental capacity.
An EPA is also viewed as a crucial and flexible tool for asset protection
The topic of EPA is increasingly discussed when lawyers consult with clients about estate planning and wills. Graves notes, “If the client loses mental capacity without an EPA, the only option is to go to court.”
In the absence of an EPA, a costly and lengthy court order would usually need to be obtained before anyone can access the finances of the incapacitated person.
An EPA is also viewed as a crucial and flexible tool for asset protection. Some clients limit their EPA to certain bank accounts. Graves notes, “If anything happens, the EPA allows the attorney to access these bank accounts to pay for the donor’s medical and other day to day expenses.”
How EPA works
In Hong Kong, an EPA outlines the specific financial matters and affairs the attorney is authorised to handle on behalf of the donor. A statutory form must be prepared first. The donor is required to sign the EPA in the presence of a registered medical practitioner and a solicitor, who must not be the intended attorney, their spouse, or anyone related by blood or marriage to the donor or the attorney. These professionals then perform the necessary certifications. The attorney(s) then has to sign the EPA to indicate his consent to act as an attorney.
Once an EPA has been put in place, the attorney has a fiduciary duty to the donor to exercise his powers with honesty and diligence, maintain proper accounts, and avoid transactions that could lead to conflicts of interest or mix the donor’s properties with others.
All decisions made by the attorney(s) should prioritise the donor’s best interests
“All decisions made by the attorney(s) should prioritise the donor’s best interests,” says Billy Ko, a Partner at Withersworldwide.
The EPA becomes effective on the date specified in the document, typically when the attorney believes the donor is becoming mentally incapable, or if not specified, on the date the solicitor has signed the EPA.
“Most people in Hong Kong prefer the EPA to take effect only once the donor loses mental capacity,” notes Graves. “The appointed attorney may then decide to obtain a medical opinion from one of the list of registered doctors approved by the Court, prior to registering the EPA”.
Ko says that mental capacity in this context is ‘action-specific’, meaning it refers to the inability to manage one’s own financial matters.
The EPA must be registered at the Court for the appointed attorney to act once the donor becomes incapacitated. If the attorney believes the donor is becoming mentally incapable, backed by medical opinion, they must apply for registration of the EPA at the Registrar of the High Court.
Before registering the EPA, the attorney must notify any nominated persons in the EPA about the application (which would often include the donor), who may then raise objections. Once registered, the creation of an EPA by the donor and the name of the attorney become public information.
Legal advice
Lawyers’ expertise helps clients understand the application of an EPA and its relation to a will. An EPA bridges the gap before a will comes into effect. A typical Power of Attorney is nullified when the donor loses capacity, while a will only becomes effective upon the testator’s passing.
An EPA bridges the gap before a will comes into effect
Each EPA is unique, tailored to individual clients’ circumstances and family situations. As Graves notes, “Some clients have a clear vision of what they want. In other cases, discussions are needed to determine what makes sense.”
In Hong Kong, clients typically appoint more than one attorney and appoint them on a joint and several basis (i.e. they can act jointly or separately) for greater flexibility.
Selecting and appointing attorneys is crucial, Graves adds. People prefer to appoint an attorney who is locally based for ease of asset management. If a donor with multiple children decides to appoint one or two as attorneys, it’s important to explain the decision to the family to avoid others feeling overlooked, which could lead to future conflict.
Ko concurs, emphasising the importance of transparency. “That’s why the EPA document includes clauses stating that before the registration is done, notifications may be sent to certain specified individuals (including the donor). For example, if sibling A is appointed as attorney, A can be required to inform the other siblings when the EPA comes into effect.”
Another consideration is the timing of EPA registration. The law specifies the latest registration time but not the earliest. It’s possible to register the EPA earlier, even if it’s set to take effect only after the donor loses mental capacity.
“Some clients prefer to register the EPA immediately after execution,” Graves notes. “The advantage is that once the EPA is registered and accepted, everyone involved knows it’s correctly in place. If it’s rejected, the donor still has the capacity to redo it.”
However, early registration can sometimes compromise safeguards against abuse. For example, if an attorney acting under the EPA before the donor’s incapacitation breaches their duties, the donor or nominated persons, who have already received registration notifications, won’t receive any further notifications. They may not be able to object to the registration and stop the attorney from acting promptly. In such cases, court intervention is necessary.
“Deregistering the EPA is a complex process because it requires a court application,” Ko points out, highlighting that people may change their minds.
Revocation and revision
If attorneys misuse their powers, mix the donor’s properties with their own, or act against the donor’s best interest, an applicant can apply to the Court to revoke the EPA and remove the attorneys. The EPA can also be revoked if the donor is proven to have mental capacity.
“Applicants must provide solid evidence of the attorney’s power abuse,” says Ko. “Interested parties can make requests to the Court to order the attorney to produce records and accounts of the living estate of the donor and to also make an order for their auditing.”
If the Court revokes an EPA, it normally appoints a Part II Committee to handle and manage the “donor’s” finances, typically comprising close family members or business associates, to manage the donor’s finances. “However, this doesn’t represent the donor’s autonomy. An EPA signifies the donor’s wish to appoint a specific individual as attorney. The court generally respects the EPA and the donor’s autonomy, unless there’s solid evidence of attorney abuse,” Ko adds.
Moreover, court proceedings are time-consuming and expensive. “Establishing a Committee takes at least nine months. Even an urgent application takes six months,” notes Ko, adding that all involved parties will be notified of the court case, and objections to the proposed Committee members are possible.
Changes in circumstances, such as appointed attorneys leaving Hong Kong, may also necessitate an EPA revision. “It’s impractical for an attorney to live in a place with a significant time difference,” Ko says.
EPA offers assurance
In this volatile era, proactive planning is key to sustainable wealth management. The EPA provides families with practical and economical reassurance. Recognising potential gaps, an increasing number of people are implementing EPA as a sensible part of their planning.
“EPA and wills fall into the same category,” says Ko. “Think of the EPA as insurance.”
Graves believes that the loss of mental capacity of a family member can be a challenging and stressful period for family members. “The impact is likely to be lessened with an EPA,” she adds.
For further information, please contact:
Billy Ko, Partner, Withersworldwide
billy.ko@withersworldwide.com
