Power of Attorney: What You Need to Know
It’s not pleasant to think about the possibility of being incapacitated by illness or an accident. But there could come a time when you’re unable to make certain crucial decisions for yourself.
Spouses just assume they will be able to act for each other if misfortune strikes, but it is not true. They are limited in what they can do. A spouse wouldn’t be able to renegotiate your mortgage, sell your house, or manage any investments or property held exclusively in your name.
It is estimated that less than 10% of Canadians have a signed Power of Attorney document that would protect them in such circumstances.
Don’t you think it’s best to be prepared, just in case?
Why a power of attorney is so important
Who will speak for you if you are ever incapable of making your own decisions?
When you draw up a power of attorney document, you grant someone the ability to legally act on your behalf.
Without a power of attorney, your assets could be locked up and there’s nothing your family members can do except apply for court approval to take care of your financial affairs. This can be time consuming and not ideal if you have people depending on you.
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Each province and territory has its own laws relating to powers of attorney and rules and terminology differ. Just do an online search for power of attorney for your province and you’ll get a government website that will give you more information that you could want.
Types of power of attorney
- A general power of attorney allows your attorney to look after all or some of your finances and property on your behalf if you are away temporarily, or if you need help managing your affairs.
It can be “specific” (e.g. sell your house) or “limited” (e.g. file your taxes) or for a specific period of time (e.g. you’re away on an extended cruise). The power of attorney can start as soon as you sign it, or it can start on a specific date.
A general power of attorney ends if you become mentally incapable of managing your own affairs.
- An enduring power of attorney allows your attorney to continue looking after your affairs even if you lose the mental capacity to make decisions yourself.
You can choose to activate it immediately or reserve it until required.
- A springing power of attorney only comes into effect if you become disabled or mentally incompetent.
Unless you limit your attorney’s authority, they can do almost everything with your finances and property that you could do. A well-drafted power of attorney will clearly establish what the attorney is authorized and not authorized to do. It also provides you with legal protection if they mismanage your finances.
Be sure you know and understand what document you are signing.
I have power of attorney at my bank
Many people have signed a document at their bank giving their spouse, child or other relative power of attorney to make financial transactions on their behalf. These are entirely different from general or enduring power of attorney forms.
These only authorize a person to manage accounts held with that particular financial institution. They contain a clause that automatically cancels the power of attorney if the person granting that authority dies or becomes incapacitated.
What about making accounts joint instead?
Setting up joint ownership may seem like a convenient option but it’s not without risks.
Things to consider:
- Joint ownership is limited to the specific asset where the other name is added. If you want to appoint someone to manage all your assets, you will need to add their name to each one individually.
- The assets become owned 100% by both people. This means either person can withdraw all the money from the account without the other person’s knowledge. You probably think this would never happen to you, but I know first-hand how someone can abuse your trust and deceive you. Also, even the most trustworthy person can be influenced by sudden money troubles and be tempted.
- It’s difficult to hold a joint account holder legally accountable for taking money from the account that they weren’t supposed to.
- If the other person owes money on a loan or mortgage, the bank will take it from your account – usually without notice.
- Jointly held assets are considered “family property” of both joint holders. So, if your joint account holder and their spouse separate or divorce, the money in the account could be claimed in the settlement.
- To remove someone from a joint account usually requires you to close the account and open a new one in your own name.
Related: How to Minimize Probate Fees
Be sure to document whether the funds in the account will form part of your estate when you die or be gifted to the surviving joint account holder.
Power of attorney for personal care (Medical Directive)
A power of attorney for property takes care of your assets. A Medical Directive takes care of you. It not only names someone to make your health care decisions for you, it also outlines life-support measures and advanced care (such as at a nursing home) you would or would not accept if you can’t make those decisions yourself due to illness or injury.
It’s a good way to make sure your wishes will be respected and helps your decision maker to make difficult choices because they know they are following your wishes. You don’t want arguments at your bedside.
Note also that a power of attorney for health care is only valid within the province in which it is executed.
Who should you choose?
When you appoint a person with “power of attorney”, you trust that person to make decisions for you in case you’re unable to because of illness, accident or absence.
You can appoint you spouse or partner, an adult child or a close friend as long as they are willing to act on your behalf and are trustworthy. You may even prefer to select an impartial power of attorney from a trust company.
Be careful whom you appoint and how much power you give to your attorney. A power of attorney is a very powerful tool and gives permission to the appointee to do whatever you can do, except make a will.
Some things to consider when choosing an attorney.
- Does this person know how to manage money and property?
- Have you known this person long enough or well enough to completely trust them to act in your best interest?
- Do they have any personal issues such as financial problems or health concerns that could interfere with them properly managing your affairs?
- Does the person live nearby and have the time to handle your money and property?
- Has this person agreed to take on the responsibility and do they clearly understand what is expected of them?
The bottom line
With people living longer these days, it’s more and more likely that some form of mental and/or physical incapacity can occur. Take a moment and think about your personal and financial affairs and how they would be handled in case of a medical emergency.
It’s a good idea to plan ahead for a time when you may need help managing your affairs. Be pro-active and consider all your options so you can stay in control of deciding who will help you or act on your behalf.
Choose someone you trust and make sure this person is willing and able to take on this responsibility.
It’s also important to secure the necessary powers of attorney to manage the personal, financial and health care interests of your elderly parents, even if it is a difficult subject to bring up.
I urge everybody to address the need for these legal documents as soon as possible.
Excellent article and highly informative!
Two observations.
Joint Bank Account — the facility will enable financial affairs to continue when a person becomes incapacitated. However, it has many drawbacks and it’s surprising that Canadian Banks have not come up with a better solution.
Power of Attorney — Millennial children of the Boomer generation are much more nomadic and unlikely to pay much attention to administrative items such as a Power of Attorney.
Boomers living in the USA have access to secure, on-line solutions that store up to date power of attorney documents that can be readily accessed by their Millennial children using cell phones from anywhere.
Canadian Boomers are not well serviced in this area in Canada and should not consider US solutions since privacy laws in the US differ.
Thanks Vince. From my experience when I worked in banking, when an account was made joint there was no monitoring of who made the transactions. Back in the day bankers – especially tellers – knew their customers well and could pick up on anything that didn’t seem right. Unfortunately, there’s a privacy agreement that makes it difficult to report any alleged wrongdoing, unlike in the US reporting is allowed.
It’s now easier to manage accounts online from anywhere – I do it for my mother when she can’t get to the bank – but some things need to be taken care of “at the source” so it can be important to choose someone close by and not too busy with their own stuff to get involved with yours.
As our population ages it’s going to be more important than ever to put some regulations in place for protection.