A recent email from Bill is a classic. It told of the problems he was having with an Enduring Power of Attorney (EPA) given to him by his brother, Henry, who had unexpectedly become incapacitated. Henry was the sole director of his own business and Bill had expected that he could use the EPA to run the business while his brother was unable to do it.

He was not allowed to.

This is because an EPA cannot be used to delegate a power. To illustrate, if you held an EPA for a Qantas pilot it would probably enable you to operate her personal bank accounts, and even buy and sell shares and property. But it would not allow you to put on her uniform and fly the plane. The pilot is appointed by Qantas, and the power to fly their planes cannot be delegated by anyone but Qantas.

A company director is a person appointed by the company, and that appointment cannot be delegated by the director to another person.

Solicitor Brian Herd points out that if the director is also a shareholder of their company, that shareholder can appoint an EPA, and the EPA can exercise all the rights and powers of that shareholder. Therefore Bill, representing Henry in his role as shareholder, could exercise the right of that shareholder to appoint a new director - this could be Bill himself.

It's a different matter if there is a family trust involved, and the trustee is a human being, not a company. Here, the ability for the EPA to act as trustee in place of the trustee who has become incapacitated depends on the wording of the trust deed. Apparently, older trust deeds never contemplated the possibility of incapacity of the trustee.

An interesting situation can arise if you are the trustee of a self-managed super fund (SMSF). The legislation does allow the EPA of an incapable trustee to become the trustee in place of the incapable one. However, if the original trustee has not appointed an EPA, and becomes unable to act, it will be necessary to apply to the court to appoint a fund administrator. If this is not done within six months of the trustee becoming incapacitated, the SMSF will become non-compliant and almost certainly lose its tax concessions. This could have horrendous consequences.

Herd also suggests getting advice about adding a clause in the EPA that permits certain potential conflicts of interest. For example, take a couple who jointly own a home worth $600,000 and the husband becomes incapacitated and moves to an aged care facility. The wife is his EPA and she now has to exercise it. A refundable accommodation deposit (RAD) of $200,000 is required, so she - acting both for herself and as EPA for her husband - sells the home. Let's assume she uses $400,000 to buy a unit in her sole name and spends $200,000 on his RAD.

Had no conflict of interest been permitted, she would have been in breach of the EPA, as technically she has taken $100,000 of her spouse's share of the proceeds. Without a clause permitting it, she would have had to do the technically correct thing, which is to bank $100,000 into a separate bank account for her husband and buy a cheaper unit for herself. But this would have created an asset for the husband that is subject to asset and income testing. Having the benefit of a conflict of interest clause enables her to sell their joint exempt asset, the home, and convert it into two exempt assets - one each - her new unit and the RAD.

This is a very complex area and getting it wrong can have enormous costs. This is why it is vital to take advice from a lawyer who is a specialist in estate planning. The cost of that advice is miniscule when compared with the cost of the potential problems.