Incapacity planning, ensuring that there’s a strategy in place if you ever become incapable of managing your affairs, is important.
We all know that. Yet, it’s uncomfortable to think about and therefore easy to put off doing.
A key part of incapacity planning is assigning power of attorney (a legal document giving someone else the right to act on your behalf), but it’s also the biggest hurdle. Giving extra thought to who you choose, and what powers they’ll be granted, can give you the peace of mind to complete your plan with confidence.
Choosing your lawyer
Choosing someone you trust to assign power of attorney is essential. Acting as your attorney involves significant duties and obligations. Your attorney’s overarching duty is to act with honesty, integrity and in good faith for your benefit if you become incapable.
The law lays out specific obligations for the person chosen to hold your power of attorney. Among other things, they will:
- explain their powers and duties to the incapable person
- encourage the incapable person, to the best of their abilities, to participate in decisions concerning their property
- foster regular personal contact between the incapable person and supportive family members and friends, and
- keep account of all transactions involving the grantor’s property.
The attorney or attorneys you choose to act on your behalf should know these rules, and be aware of other rules set out in the act as well.
For instance, they’re expected to ensure you have a will and, if so, know its provisions. The main reason for this is that your attorney must not sell or transfer property that’s subject to a specific gift in the will, unless necessary.
The act also contains explicit instructions regarding both required and optional expenditures. Examples of the latter include charitable gifts where an incapable person made similar expenditures when capable and so long as sufficient assets are available. Your attorney should also be familiar with rules covering how or when he or she can resign, what compensation they may be entitled to and the standard of care expected of them.
Safeguarding your estate
You can also build a second opinion directly into your power of attorney documents by appointing more than one person. If you name two or more people, they’ll need to act unanimously unless the document states otherwise.
A joint appointment provides a level of protection in that any appointed attorneys must agree on all actions, while a “joint and several” appointment grants flexibility, allowing any one attorney to conduct business independently.
Many people choose to appoint the same people or trust companies to be both their power of attorneys and their executors. Although you don’t need to do so, the same list of key traits – expertise, availability, accountability and trustworthiness – apply to both roles.
It’s also possible to limit the powers granted to your attorney. If you’d like your attorney to act only for a specified time period (maybe a vacation or hospital stay) or in respect of a specific transaction (the closing of a real estate deal), a limited or specific power of attorney is worth considering.
In the case of a general continuing power of attorney, many people want the document to be used only if and when they become incapable of managing their affairs themselves.
Although the document is effective when signed, it is possible to include provisions in the document itself that defers it to a future date or the occurrence of a specified condition (for example, the grantor has a stroke). These are sometimes referred to as “springing” powers of attorney.
Whichever way you prepare your power of attorney documents, careful consideration of who you choose as well as availing yourself of available safeguards will help ensure your confidence in your incapacity plan.
Common Mistakes to Avoid
- Making a quick decision: Many people name their PoAs without thinking about their choice’s financial capability, much less their ability to get along with other family members.
- Assuming family is always the best choice: It’s far more important to choose someone who truly has your client’s best interests at heart.
- Waiting too long: If there’s already a question of diminishing capacity, it’s likely too late to make a power of attorney ironclad.
- Not reviewing it: Changing life circumstances and new provincial legislation can make an old PoA invalid.
Plan for Incapacity
Your estate plan doesn’t end with an up-to-date will. It should also anticipate possible future incapacity, which usually means preparing powers of attorney for both property and personal care.
Power of attorney, a legal document that gives someone else the right to act on your behalf, has two main types: one for management of property, another for personal care.
Will and estate planners generally advise preparing both types of powers of attorney. While they are often prepared at the same time as your will, they can be created at any time.
With a power of attorney for personal care, you can authorize someone to make decisions concerning your personal care in the event that you become incapable of making them yourself.
You can give power of attorney for personal care if you’re at least 16 years old, have “the ability to understand whether the proposed attorney has a genuine concern” for your welfare, and can appreciate that the attorney may need to make decisions.
Personal care includes decisions concerning health care, nutrition, shelter, clothing, hygiene and safety.
A continuing power of attorney for property authorizes someone to do anything regarding your property that you could do if capable, except make a will.
The law says you’re capable of giving a power of attorney for property if you’re at least 18 years of age, know what kind of property you have, along with its rough value, and are aware of any obligations owed to your dependants.
The term “continuing” (sometimes called “enduring”) refers to a power of attorney that may be exercised during the grantor’s subsequent incapacity to manage property. Ensure the document stipulates that you want the power of attorney to be used only if you become incapable.
What you need to know
A continuing power of attorney for property is a powerful document. Unless otherwise stated in the document, it’s effective when signed, granting considerable power.
In fact, the act explicitly requires you to acknowledge this authority can be misused. And, as part of the capacity test for granting a continuing power of attorney, you must also acknowledge the property you own may decline in value if not properly managed.
A financial institution, land titles office or other third party presented with a continuing power of attorney for property with the restriction “effective only in the event of the grantor’s incapacity” will want evidence of the incapacity.
- You tell the attorney you want him or her to start acting;
- You are legally declared incapable of managing your property;
- One or more doctors advise that you’d benefit from assistance in managing your affairs; or
- Certain family members advise the attorney should begin acting.
No direction could be costly
If you fail to prepare power of attorney documents, it may take an application to court before someone can be appointed to make decisions for you. That can leave you scrambling when you’re in no physical shape do so. Having a will doesn’t help because an executor is only authorized to act after you die.
On top of that, court processes can be both costly and time-consuming. Depending on the circumstances, the Public Guardian and Trustee may have to get involved.
You also lose the opportunity to appoint people or companies of your choosing and aren’t able to establish parameters regarding the actions of your substitute decision makers.