By Olev Edur
If you ever become incapacitated, you’ll want someone you trust to look after your interests, but the details of arranging that can get complicated; here’s an overview
We’re living longer on average than ever before, and of course that’s wonderful news, but this growing lifespan has a potential downside—those extra years may not all be lived in the best of health. Most retirees now recognize that in order to avoid potentially serious difficulties should they suddenly become incapacitated, it is essential to create a power of attorney (POA, or “representative agreement” in British Columbia and “mandate” in Quebec—the terminology and rules vary by province or territory).
A POA bestows legal authority on someone else to look after your affairs should you become unable to do so yourself. Creating one needn’t be complicated—the basic document can, in many cases, consist of a single page—but each jurisdiction has its specific requirements, and failure to heed the rules could result in a document that is legally invalid, leading to a potentially long and costly court proceeding.
Basic Document Essentials
First, you (or your adviser) must become familiar with the local requirements, although some elements are common to all. “The most structured and restrictive province is always Quebec, but all provinces and territories require certain things,” says Carol Willes, director of estate planning at BMO Private Wealth in Ottawa.
“A power of attorney needs to be put in writing, it needs to be witnessed, and it needs to be dated and signed,” Willes says. “Whether it’s a provincial form or your own written form, it always requires those elements. That’s the first hurdle; we often see that something is missing, and if it doesn’t have all of these, the document is not valid.”
Nicole Ewing, director of tax and estate planning at TD Wealth in Toronto, concurs, adding, “Any form is acceptable as long as it meets the requirements of your provincial act governing powers of attorney, but you need to be cautious; some provinces require more than one witness, for example, so you must have the right number of witnesses.”
It must also be clearly demonstrable that you were competent when you created the POA. “One big issue is the need to establish mental capacity at the time the powers are created so they won’t be challenged in court,” Ewing says, noting that while you don’t necessarily need a lawyer (or in Quebec, a notary) to create a POA, it can be very helpful in this regard. “When it comes to establishing capacity, a lawyer will be able to attest that you did have capacity, that everything looked in order and there were no problems,” she explains. “They can attest that there was no undue duress—for example, a child forcing you to do certain things. A lawyer can make the situation more objective.”
In addition, in most jurisdictions, the document must clearly state that the powers are to be “continuing” or “enduring.” “Unless this is clearly stated, the POA will cease to be valid as soon as you become incapacitated,” Willes says.
Furthermore, you may need to add a second document to the POA itself. “Prior to the 1990s, the attorney [the person you’ve named to act for you] could act only when you lost capacity [provided the POA was continuing or enduring], but now in virtually all jurisdictions, a POA becomes effective as soon as it is created,” Willes says. “This was part of a trend in common-law provinces to provide more flexibility. For example, it could allow the kids to look after your affairs while you spent the winter in Florida; when you came back, those powers would revert to you. This way, you could use the POA without having to create a new one every year. But it does create the danger that once it has been created, the attorney can act right away.”
Because of this, Willes suggests you create a second “direction” document that sets out the conditions under which the powers come into effect. “You need to do this before somebody runs off to the races with your finances. If you want flexibility, you could include in your direction document an authorization of its use in your absence from Canada.”
Information About Your Finances
How much financial information should you include in the POA? Willes suggests that while basic instructions are essential, you should try to avoid overdoing it. “You don’t need to include all your financial details—just enough to allow the attorney to do what they need to do, such as pay bills, deposit payments, and so on,” she says. “You want to be careful not to be too directorial and guess every possible outcome. You want to give as much power and flexibility as they need in order to administer your finances, but if you’re too restrictive, you can end up making it difficult for them to act.”
While the powers should be generalized as much as possible, certain situations require particular attention. “The provinces are all a bit different in this respect, but there are three things that should be specifically dealt with in the POA document,” Willes says. “First, you have to deal with the matrimonial home. In most provinces, even if the home is jointly owned, both owners must agree to any major decisions. So, for example, you can’t sell the home or borrow against it without both owners’ consents, and you can’t give consent if you’re incapacitated. So, you need to authorize the POA to be able to provide this consent on your behalf. And the consent needs to be very clear; otherwise, it will have to go to a judge, and that can be very costly.
“Second, you need to think about your dependants, whether they’re young kids, your spouse, or perhaps an adult child who is incapacitated,” Willes says. “A POA comes with the responsibility to act in your best interests, but you have to authorize the attorney to also consider the interests of your dependants. And third, you have to consider what to do about making gifts or charitable donations, whether for tax purposes or other reasons. Again, this has to be spelled out very specifically in the document.”
As a result, while you can certainly create your own POA, a lawyer can be invaluable in ensuring that everything that should be included is included and that the document is worded in a way that is legally acceptable. “Having a lawyer at least look at the document is really critical,” Ewing says. “A POA should be part of your overall estate and financial plan, and a lawyer can point out all the what-ifs—if you appoint someone living in the United States, for example, there could be problems.”
“Another problem that often arises without anyone—even advisers—realizing it is that the POA you create covers all your assets, but sometimes you may already have POAs covering specific assets,” says Willes, noting, for example, that many financial institutions’ standard account forms often contain a POA for those accounts, to deal with actions such as deposits and withdrawals, or trading. “You end up with duelling attorneys and, again, it can wind up in court. You never want to create multiple POAs, but the problem is that clients [in financial institutions] often don’t understand what they’re being asked to sign and advisers may be unaware of such provisions as well,” Willes adds. “There’s a need for more education for clients as well as advisers on this, but you want to be sure that you always use only one simple, overriding POA for all your assets.”
Choosing the Right Person
“I could write a book about the subject of choosing the right person for your POA,” Willes says. “It’s a difficult issue, and we often see clients struggle with who the right person is. People often tend to gravitate to certain family members—perhaps to avoid hurting someone else’s feelings—but this can be the worst possible choice. You don’t want someone who can be swayed by siblings—pillow talk is powerful. And you don’t want someone who might abuse the role or take the financial obligations and liabilities lightly. You need someone who understands your wishes but also has some financial acumen because they have a fiduciary responsibility not only to you—the attorney for your property is also legally accountable to the beneficiaries of your estate. As a result, a beneficiary can come and say ‘I would like to see a full accounting of the deceased’s finances’ and the attorney can be held legally responsible if something goes wrong.”
Ewing agrees that appointing a family member can be problematic. “We sometimes find that people don’t know whom to name or they name someone they feel they should rather than someone they want, perhaps because of family pressure,” she says. “We see this a lot with blended families, where there can be conflicts between the spouse or kids from a first marriage. You need to make sure you appoint the person you want.”
“Often this can be a strong argument for getting a professional—whether it’s a lawyer, an accountant or other financial adviser, or a trust company—rather than a dependant,” Willes says. “Using a professional keeps family dynamics out of the equation.”
Ewing is even categorical: “I think a professional attorney should be considered by everybody.”
Nevertheless, while there are strong reasons for considering a professional attorney, there may be overriding reasons for gravitating to someone who is familiar with your wishes and your family situation. “You want someone you feel comfortable talking with,” Ewing says. “And you want somebody who lives close by, so they can attend meetings and check on you from time to time.”
One way to resolve this conundrum is to appoint a family member or close friend and instruct that person to hire professional help when necessary. “If you appoint someone and they don’t know what to do, they can hire a trust company or other professional to make sure that taxes are filed, for example, and financial questions are dealt with properly,” Ewing says. “Professional agents are an excellent service; these are people who have been doing this all their lives and know what they’re doing. And they have a whole team behind them who can provide help and support.”
Another option is to appoint co-attorneys, although Willes says this can create problems. “When setting up the POA, keep in mind that if you make it a joint arrangement, both attorneys have to agree to all decisions,” she warns. “They have to act together and can’t make decisions on their own. This can create problems if, for example, one attorney is not available at the required time.”
Willes points out that you could avoid such problems by making the arrangement “joint and several,” but this can create other problems. “‘Joint and several’ means that the attorneys can act independently, but the danger here is that they can run off in different directions and may not even be aware of what the other is doing, so it can all go sideways,” she explains. “And when it comes to liability, each is liable for the decisions of both. For this reason, I say that you should never make a joint-and-several arrangement—to protect the attorneys and to protect yourself.”
“Naming one person or professional is usually best,” Ewing says. “Naming joint attorneys—a son and a daughter, for example, or a child and a professional—can create disagreements. The more you name, the more opportunity there is for disagreements, or worse.”
Finally, if you do appoint a family member or close friend, you should always designate a backup should that person become unavailable or unable to act. “If you name one person, having a backup is very important,” Ewing says. “You want somebody who can act if the first person isn’t available or can’t act, but again, the documentation must be very clear. Under what conditions does the backup take over?”
POAs for Personal Care
While we’ve been concerned so far primarily with POAs governing financial affairs, you should also consider appointing a second POA to deal with your personal care should you become incapacitated. “You definitely want both an attorney for property and an attorney for personal care,” Ewing says, adding that, again, the terminology can differ depending on the province.
It should also be noted that although they’re often confused, a POA for personal care is not the same as a living will. The latter sets out your wishes regarding health care but doesn’t appoint anyone who can make these decisions on your behalf if you become incapacitated, whereas the POA does just that: it enables the attorney to make decisions about medical treatments, diet, accommodations, and so on.
As for whom you should appoint, Ewing says that you could appoint the same person, but this may not be advisable. “The skills required for the attorney for personal care are different from those required for the attorney for property,” she explains. “For personal care, you want someone whom you feel comfortable telling what you want and don’t want.”
Nevertheless, if you appoint different attorneys for property and for health care, they should be able to work together when necessary: “You may not want the same person, but they do need to be able to interact properly because, for example, the medical expenses dictated by the attorney for personal care must be paid by the attorney for property. So they have to get along.”