The Importance of Powers of Attorney: An Overlooked Aspect of Estate Planning


 

Often prospective clients tell me that they need a Will. They do – Wills are a key part of a good estate plan – but Powers of Attorney are also very important documents to have in place.

While Wills address what should happen after your death, Powers of Attorney deal with who you want to make decisions for you while you are still alive. As such, your Powers of Attorney – in particular the persons you appoint in those documents to make decisions on your behalf (your Attorneys) – can have a big impact during your actual lifetime. From this perspective, they deserve at least equal consideration to what should happen after you pass away.

Powers of Attorney (POAs) are especially important in case you suffer a medical emergency (e.g. a stroke) or develop cognitive impairment (e.g. dementia) and lose mental capacity. POAs can only be used while the Grantor (the person who gives the Power of Attorney) is alive. In Ontario, there are two types of Powers of Attorney: A Power of Attorney for Property and a Power of Attorney for Personal Care.

Very critically, if you do not have POAs in place and you become mentally incapable, a person (usually a spouse or family member) may need to apply for guardianship in order to be able to make decisions on your behalf. Guardianship usually involves going to court and can cost thousands of dollars, far more than POAs cost.

Further, it must be emphasized that no one – not even your spouse – has an automatic right to manage your property on your behalf if you lose mental capacity. This authority can only be given under a valid POA for Property or by court (guardianship).

The capacity tests for Property and Personal Care are different, so it could be that a Grantor is still mentally capable of making personal care decisions for him- or herself, but no longer capable of making property decisions. In any regard, it is important to meet with a lawyer to prepare a Will and POAs well before there are any concerns about mental capacity, if at all possible.

Power of Attorney for Property

Most POAs for Property are continuing, in that they will continue to be effective if the Grantor later becomes mentally incapable. If a POA for Property is not continuing, then it will not be effective if the Grantor later becomes mentally incapable.

Unless the POA for Property contains restrictions, an Attorney for Property generally has the power to do on the Grantor’s behalf anything in respect of property that the Grantor could do if he or she were mentally capable, except make a Will. In some instances, an Attorney for Property also cannot change beneficiary designations for certain assets, like RRSPs, RRIFs, TFSAs and life insurance policies.

The Attorney for Property must act diligently on the Grantor’s behalf, with honesty and integrity. The Attorney for Property must act reasonably, in good faith, and in the Grantor’s best interests. The Attorney for Property must also keep detailed accounts demonstrating exactly what he or she has done with the Grantor’s property.

Before giving a POA for Property, the Grantor needs to understand that unless the Attorney for Property manages the Grantor’s property prudently its value may decline. The Grantor must also appreciate the possibility that the Attorney for Property could misuse the authority given to him or her (e.g. the Attorney for Property may steal property). It must be noted that abuse of a POA for Property can be a criminal offence. The best defence for a Grantor is to only appoint someone he or she trusts as Attorney for Property.

The Attorney for Property is generally entitled to compensation for his or her services to the Grantor, but he or she must be able to show all work performed on the Grantor’s behalf.

Power of Attorney for Personal Care

A POA for Personal Care can only be used if the Grantor is mentally incapable of making personal care decisions for him- or herself. “Personal Care” includes health care, food, living arrangements or housing, hygiene and safety.

If the Grantor has expressed wishes with respect to his or her personal care (e.g. wishes regarding terminating life support), then the Attorney for Personal Care is generally required to follow those wishes, if the wishes are known to him or her and if following those wishes is possible.

If the Grantor has not expressed wishes with respect to his or her personal care, then the Attorney for Personal Care is generally required to make a decision in accordance with the Grantor’s “best interests,” which is defined under the legislation. In general, the Attorney for Personal Care should choose the least restrictive and intrusive course of action or treatment that is available and appropriate. Like the Attorney for Property, the Attorney for Personal Care must act diligently on the Grantor’s behalf, with honesty and integrity, and must act reasonably and in good faith.

General

Attorneys must seek to foster regular contact between the Grantor and supportive family members and friends and must consult with them from time to time, but the named Attorney is not necessarily required for the follow the instructions of family members and friends. However, an Attorney who fails to act and/or acts improperly can be removed.

POAs can be revoked as long as the Grantor is still mentally capable and a properly revoked POA is no longer effective. Grantors and Attorneys need to be at least 18 years old for POAs for Property and 16 years old for POAs for Personal Care.

It is possible to appoint multiple persons as your Attorneys (e.g. two or more of your children), either “jointly” or “jointly and severally.” In fact, I usually recommend that clients appoint at least one primary Attorney and at least one alternate, just in case the primary Attorney becomes unable or unwilling to act for whatever reason.

This article is very much a brief introduction to POAs and there are important considerations that cannot be addressed here: For example, what if your proposed Attorney lives very far away or in the United States? Or what if your proposed Attorneys don’t get along with each other? Please contact the Wills, Trusts and Estates depart at OMH today to book an appointment with one of our experienced lawyers and to learn more about POAs and estate planning generally.