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With a power of attorney for property, one individual (the attorney) makes financial decisions on behalf of another (the grantor). While a will names an executor to administer the estate of a deceased individual, a power of attorney grants decision making authority while the grantor is still alive. Like a will, it’s an important part of a comprehensive financial and estate plan. Yet powers of attorney are often less well understood than wills, so it’s worth looking more closely at how they work.
What is a power of attorney?
A power of attorney authorizes one or more people to manage money and property on behalf of someone else (the grantor). The person appointed does not have to be an actual attorney or lawyer – they can be a family member, friend or professional. While each province and territory has different legislation governing powers of attorney, there are two basic types.
A general power of attorney takes effect only when the grantor is mentally capable of managing their own affairs. It ends if they become mentally incapable. In addition, it can be “specific” or “limited,” applying only to a defined task, such as selling a house, or to a defined time period, such as the dates the grantor plans to be out of the country. It starts either as soon as it is signed or on a specific date.
An enduring/durable or continuing power of attorney allows the attorney to continue acting if the grantor becomes mentally incapable. It starts either as soon as it is signed or only when the grantor becomes mentally incapable (such as a springing power of attorney). The standard for incapacity should be specified for a springing power of attorney.
What can an attorney do?
An attorney can be authorized to take care of a range of tasks on the grantor’s behalf, such as managing day-to-day banking, signing cheques, buying or selling real estate, and borrowing money. The money and property continue to belong to the grantor – they are simply delegating authority to manage it. It’s important to note that an attorney cannot change the grantor’s will, change a named beneficiary on a life insurance plan or give a new power of attorney to anyone else to act.
That said, because an attorney has such important responsibilities, it’s a good idea to ask a lawyer who is familiar with the grantor’s province’s or territory’s power of attorney legislation to draft this document. A lawyer can ensure that a power of attorney is valid, explain how to monitor an attorney’s actions, and advise how to revoke or change a power of attorney appointment. A lawyer can also incorporate restrictions that limit what an attorney can do.
Who is the right person for the job?
A power of attorney grants considerable authority. Questions to consider before selecting an attorney include:
- Is he or she willing to be an attorney?
- Can this person be trusted with personal finances?
- Is he or she reliable, living nearby, easy to contact and readily available?
- Does he or she have a good understanding of financial matters?
- Are there financial, health or family challenges that may interfere with his or her duties?
- Does he or she have time to dedicate to being an attorney?
Once someone has been chosen, a candid conversation about this role and its responsibilities is crucial. An attorney is legally obligated to act in the grantor’s best interests at all times and can be liable for a breach of their duties. The grantor should talk to their prospective attorney about their financial preferences and wishes. The better the attorney understands how the grantor currently manages money and property, the better he or she will be able to complement their approach. Furthermore, some provinces require the appointed attorney’s signature confirming their acceptance of the role.
Keep in mind that appointing more than one person as an attorney can work well, but it can also lead to disputes that affect the smooth management of the grantor’s finances. However, having two or more attorneys acting jointly could reduce the risk of fraudulent activities. It is prudent to appoint a successor or alternate attorney who can step in if the first attorney(s) no longer can or no longer wishes to fulfill his or her duties.
If there isn’t anyone that can adequately perform the responsibilities of an attorney, or if one’s financial situation is complicated, there is the option of appointing a financial or legal professional, though the professional’s services likely come at a cost. As well, a family member or friend acting as attorney could also be paid or be eligible for compensation for this role.
Speak with an advisor
An advisor can provide more information about powers of attorney and refer individuals to a lawyer who can help them understand the benefits and risks. Once a power of attorney is appointed, financial institutions can be consulted about their rules for working with attorneys and monitoring accounts. In addition, the grantor can continue to review their own financial records on a regular basis for as long as they are able.
A power of attorney can give the grantor one less thing to worry about. Even with an effective power of attorney in place they can still manage your own financial affairs, so long as they are mentally capable of doing so. If it’s right for you, talk to your advisor about setting one up.
A power of attorney for property covers only one’s finances and property. A power of attorney for personal care, a personal care directive or an advanced health care directive governs decisions about personal health care.
The commentary in this publication is for general information only and should not be considered investment or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.
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