The focus of estate planning has traditionally been the transfer of wealth, whether through a will or a trust, but besides planning how a person’s assets will pass to others, we should also focus on ensuring that our clients are well-protected in the event of a disability.
Some clients have been under the impression that the person named as an executor in their will also have the ability to deal with their assets should they become incapacitated.
This is not the case, as this can only be done by a Power of Attorney.
Powers of Attorney are not just for mental incapacity. They can be helpful if someone travels a lot or has a scheduled surgery that means they will be spending time in hospital and won’t be able to sign documents to tend to their own financial matters.
Where a power of attorney is useful
- Financial institutions will not deal with anyone but the account holder or a properly authorized attorney (and even with a Power of Attorney it is sometimes difficult).
- Land title documents (property purchases, sales, and mortgage renewals) must be signed by the registered owners or a person properly authorized to sign on their behalf.
- CRA requires proper authorization from a taxpayer in order to provide information or to allow someone else to act on a taxpayer’s behalf in dealing with the CRA.
Making or changing a will by an attorney using a Power of Attorney is specifically prohibited.
Creating a Power of Attorney
Any capable adult may make an enduring power of attorney. The test of capacity is being capable of understanding the nature and consequences of the proposed enduring power of attorney. Specifically, under s. 12 of the Power of Attorney Act, they must be able to understand:
- The property the adult has and its approximate value;
- The obligations owed to dependents;
- That the adult’s attorney will be able to do on the adult’s behalf anything in respect of the adult’s financial affairs that the adult could do if capable, except make a will, subject to the conditions and restrictions set out in the enduring power of attorney;
- That unless the attorney manages the adult’s business and property prudently, their value may decline;
- That that the attorney might misuse the attorney’s authority; and
- That the adult may, if capable, revoke the power of attorney.
It is called “enduring” because it will continue to take effect upon the incompetence of the donor, which was not the case prior to 1979.
Lawyers should take care to ensure that the client is preparing the power of attorney of their free will, and not due to fraud or undue influence by a family member.
The name used in a Power of Attorney must be correct
It is critical that the name used in the power of attorney is identical to that under which assets are registered. Challenges include the use of middle initials, differences in spelling, the use of hyphens, or the use of married or maiden names and variations of a person’s name.
Checking land title and bank account records is good practice here to verify which name has been used.
It is not unheard of for passports and driver’s licences to have different name variations.
It is also not unheard of to need to do more than one power of attorney for a client to match each variation – I have done two versions for clients on a few occasions.
Who to appoint
It can be any adult, usually it is a spouse or adult children.
There may be more than one attorney, either as alternates or acting together. They must act unanimously unless the power of attorney specifies their respective areas of authority.
Appointing two or more people to act together is cumbersome as all of them must sign documents for all transactions.
Appointing someone who lives in another province will make it very difficult for that person to be able to tend to adult’s financial affairs. As well, both the person giving the Power of Attorney and the person agreeing to act as attorney must sign the document in front of witnesses, which can also present challenges for an attorney who lives in a different province.
Types of Powers of Attorney
Enduring and springing
Enduring take effect immediately and continue to take effect upon the incompetence of the donor, meaning the donor is not mentally capable of managing their own affairs.
Springing take effect after a specific event has happened, such as incapacity.
Challenges with enduring powers of attorney
The adult might not be comfortable giving those powers immediately because if the named attorney has a copy they can use it. This can be managed by keeping the original power of attorney in the possession of the adult – provided it is not too well hidden as the attorney will need the original document in order to be able to use it.
Challenges with springing powers of attorney
The power of attorney won’t take effect until a specific event has happened, such as the incapacity of the adult, though this can make things challenging for the attorney, because:
- They may need to use the power of attorney before the point where a doctor would declare the adult incapable, or
- Getting the declarations from doctors can take time (if the adult will cooperate with the assessment process) and it can be expensive.
Extraprovincial use of powers of attorney
This is not always guaranteed. Powers of attorney are intended to be used for assets located in the province where they are created, but it is sometimes possible that one made outside of BC may be used in BC if there is an accompanying solicitor’s certificate, it meets BC requirements, and it is from Canada, the US, United Kingdom, Australia, or New Zealand.
A power of attorney may be revoked at any time if the adult gives written notice to the attorney and relevant financial institutions that it has been revoked. The adult must be able to understand the nature and consequences of doing so. Note that if a person is declared incapable under the Patients Property Act, the Public Guardian will become that person’s Committee and an existing power of attorney may be suspended pending a determination of whether the PGT should take over management of the adult’s assets.
Powers of attorney are automatically extinguished upon the death of the adult. Once someone dies, their executor steps into the executor’s role to manage the financial affairs and prepare the estate for probate.
Powers Granted by a Power of Attorney
Default powers granted by a power of attorney include limited powers for making gifts or loans, limited powers of investing as per the Trustee Act (s.19(3)(b)) and delegating investment decisions (s23(2)). Powers can be expanded or reduced in the power of attorney. Some clients may wish to expand the gifting powers to provide maintenance for family members, while others may prefer to limit it.
As a balance to expanding permissiveness, the adult may wish to provide for better accountability and provide for a duty to provide information and accounting to another family member who would act as a monitor.
The attorney is not entitled to compensation unless the amount or rate is expressly authorized in the power of attorney, but reasonable and proper expenses are permitted.
Abuse can be reported to the Public Guardian and applications can be made to court for directions.
By Michelle Siedel
Michelle Seidel is a solicitor with 20 years of legal experience. She joined Crease Harman LLP in 2019, after moving to Victoria, BC. Prior to joining Crease Harman, Michelle worked as general counsel for a technology company and she also operated her own firm in Vancouver with a focus on real estate, wills, and corporate law. She is passionate about good estate planning and helping businesses to succeed.