by Eunice Chiu, Partner, Litigation
As life expectancy rises, we see an increasing number of family patriarchs/matriarchs living longer, sometimes with decreased mental capacity. To protect family assets, younger family members may then wish to take over the management of family assets, but how do we ensure that this is done properly without being challenged in court in the future?
The Enduring Power of Attorney (“EPOA”) regime under the Enduring Powers of Attorney Ordinance, Cap. 501 provides a great tool that allows a person to arrange, BEFORE mental capacity occurs, for someone else to step into his shoes to deal with property and financial decisions (but not decisions relating to medical or personal care) in the unfortunate event that he becomes mentally incapable.
As explained below:
The formal requirements of creating a valid EPOA are:
The substantive requirement: Mental capacity at the time of executing the EPOA. In HK, unlike in other common law jurisdictions, the law on the EPOA is still at a developmental stage. So far, our High Court in To Lee Wah Samuel v Yum Huin Ming  HKCFI 1441 has interpreted incapacity as consisting of 2 elements:
The person who challenges the validity of an EPOA bears the burden of proof – see To Lee Wah Samuel, supra.
Please note that both requirements (mental issue and inability to communicate) must be present for mental incapacity to be established. However, a person does not necessarily lack the capacity to grant an EPOA even if he suffers from a mental handicap or disorder. As long as he fully understands the nature and effect of the EPOA and voluntarily grants the EPOA to an attorney of his choice, the EPOA will be valid. In To Lee Wah Samuel, supra, the court cited the following passage from the UK case of Re K (Court of Protection)  1 Ch 31 at 315 with approval:
In practice it is likely that many enduring powers will be executed when symptoms of mental incapacity have begun to manifest themselves. These symptoms may result in the donor being mentally incapable in the statutory sense that she is unable on a regular basis to manage her property and affairs. But, as in the case of Mrs. F., she may execute the power with full understanding and with the intention of taking advantage of the Act to have her affairs managed by an attorney of her choice rather than having them put in the hands of the Court of Protection. I can think of no reason of policy why this intention should be frustrated.
In contrast, in order to persuade the Court that a committee should be appointed to manage and administer the property and affairs of a person under the Mental Health Ordinance, one must show an inability to actually manage his affairs (a higher threshold). Further, there are far more steps and costs involved in a Court-appointed committeeship. The explanation of this regime is beyond the scope of this article. It should be noted that once committeeship has been appointed, the EPOA would automatically be revoked (C v B re A: Mental Health  2 HKLDRD 1105):
Practically-speaking, a valid EPOA can come into existence as long as the doctor and the solicitor conduct assessments that are procedurally and substantively correct and tailored to the donor’s circumstances (the widely popular MMSE test is not conclusive and other clinical tests should be considered depending on the circumstances), and both the doctor and the solicitor maintain sufficiently-detailed contemporaneous notes that would hold up during any potential cross examination.
Finally, there are 3 additional issues that you should consider with your solicitor:
If you wish to have a confidential discussion about the EPOA, court-appointed committeeship or other aspects of estate planning, or if you wish to challenge an EPOA that has already come into existence, please feel free to contact our partner, Ms Eunice Chiu, at [email protected], +852 2186 1885. Ms Chiu is an experienced disputes and private client solicitor, qualified to practise in Hong Kong and British Columbia, Canada.