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Learning Centre -
Estate Planning
Incapacity: Planning ahead helps
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Accidents and aging are a
part of life. Like an up-to-date will, a power of attorney is an
important tool in financial and estate planning. Planning ahead
in case of serious disability or health problems allows decision-making
relating to property or personal care to proceed without unnecessary
disruption.
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What is a Power of Attorney?
A will gives an executor or liquidator the authority to manage someone's
affairs after death, whereas a power of attorney gives the person
named (called an "attorney", "donee" or, in Quebec,
a "mandatory") the power to make decisions on your behalf
while you (the donor) are still alive. These decisions can be financial
or, where provincial law permits, personal in nature, or both.
A power of attorney is usually established as
part of an estate plan when a will is being reviewed.
Quebec Residents: The province of Quebec follows laws set
out under the Civil code of Quebec. This differs from the other provinces
in Canada which are governed by common law principles and provincial
statutes. Generally, the principles of powers of attorney (called
mandates in Quebec) are similar in all provinces; however, there are
some aspects in which both the method of implementation and the terms
used differ, and should be noted.
- What is
a Power of Attorney for Property?
A
power of attorney for property can be limited or general in nature.
The attorney can be restricted in authority to, for example, sell
only certain securities, or conduct banking activities only while
the donor is out of the country. Most financial institutions use a
standard "stock power of attorney" when accepting share
certificates on behalf of a client. This document limits the power
to the specific shares described. A general power of attorney will
have no restrictions on the scope of financial matters with which
the attorney may deal. An individual who is regularly out of the jurisdiction
where his or her assets are located, or who anticipates diminished
capacity due to age or illness would likely opt for a general power
of attorney.
Where provincial law permits, powers of attorney
for property can be continuing (or durable), meaning that they will
still remain in effect if you become mentally incapable. If you do
not have a continuing power of attorney and you become incompetent,
your family or friends could be faced with a time-consuming and expensive
legal process to get the authority to manage your financial affairs.
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What is a Power of Attorney for Personal Care?
In those jurisdictions where it is recognized,
a power of attorney for personal care ensures that someone is authorized
and prepared to make decisions of a personal nature on your behalf
should you become incapacitated. Unlike a power of attorney for property,
this power of attorney comes into effect only on your incapacity.
You can appoint as your attorney for personal care the same person
as your attorney for property, or you may name someone else. Depending
on the province you live in, decisions about where you would live,
what you would eat, or medical treatment you would receive would be
the responsibility of your attorney for personal care. In some provinces,
you can appoint a substitute decision-maker only for medical decisions.
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What is a Living Will?
A
living will (sometimes known as an advance health care directive)
may be included in a power of attorney for personal care; however,
it is often written as a separate document. A living will provides
instructions about the type and intensity of medical treatment a person
wants to receive (or not receive) if he or she is incapable of making
the decision. Initially restricted to cases of a terminal illness
or incurable condition, more recent versions have a broader scope,
including the acceptable range of medical procedures.
Living wills tend to be completed primarily
for guidance to the individual authorized to make medical decisions
for an incapable person. They are not recognized in all jurisdictions.
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Whom should I choose to be my attorney?
Although
the individual appointed under a power of attorney is called an "attorney,"
he/she need not be a lawyer. Many people name a spouse or adult child,
or someone close to them. Attorneys must understand what their responsibilities
are and be able to manage the affairs for which they may become responsible.
It is important that you give careful thought
to who can control your assets and well-being. Your attorney should
be someone you completely trust, and who you know will act in your
best interest. You can have more than one attorney, but if you do,
you should clearly detail whether they must act together, by majority
rule, or on an individual basis.
If possible, it is advisable to appoint an attorney
for property who is knowledgeable in financial matters, or who will
know when to get professional help.
It's a good idea to talk to whomever you plan
to appoint to make sure that person is willing and able to assume
this responsibility. Make sure you and your proposed attorney discuss
the matter of compensation, and incorporate your joint understanding
into the power of attorney document.
Giving power of attorney to someone does not
always take away your power to act personally, (subject to any limitation
contained in the document relating to your mental condition). It does,
however, authorize the attorney to share that power in the case of
property, but not for medical care (as the power of attorney comes
into effect only upon your incapacity).
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What does a Power of Attorney document look like?
The
forms for power of attorney are designed according to the applicable
provincial legislation. All documents include: .
- The
name of the donor
- The
name of the attorney
- The
witnessed signature of the donor
- The
specific authority being given
As with a will, the donor must be mentally competent,
or "of sound mind" according to the criteria set out in
provincial statutes when the power of attorney is signed. Persons
whose mental faculties are failing must have chosen an attorney to
act on their behalf and have executed a power of attorney while still
competent. They will not have a choice about who will act on their
behalf if they leave this decision too late.
In the province of Quebec: Two separate
powers of attorney, commonly known as mandates, may be required, one
that is effective while the donor is capable, and one for if the donor
becomes incapacitated.
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Why is legal advice so important?
To
minimize any legal challenges later on, a lawyer should be consulted
to draw up a power of attorney at a time when a donor's mental abilities
are unquestioned. If there is any doubt, it is wise to have a doctor
or other qualified person assess the capacity of the donor before
executing the power of attorney. A lawyer can also assist the donor
in understanding the uses to which a power of attorney can be put,
and in the case of a power of attorney for property, appreciating
the authority another person will be able to exercise regarding the
donor's financial decisions.
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What is the role of the Public Trustee?
It is a misconception that the government is
waiting to take over your assets whenever possible. In some cases,
the Office of the Public Guardian and Trustee (or the provincial variation
of this Office) will manage an individual's assets and property if
the individual is incapable of doing so personally but has not signed
a power of attorney.
Even then, in Ontario, a family member can
apply to the public trustee to be appointed as statutory guardian,
attorney or representative. Other provinces have similar roles, but
a legal adviser should be consulted in your jurisdiction about the
details of the legislation.
The public trustee assesses all applications
and may require even close family members to post bond or security
and file a management plan that will in turn be monitored by the public
trustee. The public trustee will step in as required, and can take
possession of and make decisions about bank accounts, bonds and all
other assets without consulting family members. The decisions made
may not be the decisions preferred by an individual or that individual's
family members, so it is always better to plan ahead and draw up a
power of attorney.
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Mandate given in anticipation of incapacity -The Quebec Situation
Under the Civil Code of Quebec, an individual,
called the mandator, can name another person or a trust company as
the mandatory to make decisions on his/her behalf if mental incompetence
occurs. The mandatory must apply to the courts to certify the mandator's
incapacity before the mandate can become effective. This application
will require a psychological and medical assessment of the mandator.
A single mandate document can be used to empower
the mandatory regarding the mandator's finances, personal care, health
care directives or living will and/or organ donation instructions.
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Are there Alternatives to Powers of Attorney for Property?
JOINT
ACCOUNTS WITH RIGHT OF SURVIVORSHIP (*NOT
RECOGNIZED IN QUEBEC)
Bank and/or investment accounts held in joint
name with your spouse (or other trusted person) may reduce the need
for a power of attorney, as long as they are set up so that either
party can sign or complete transactions. This does not mean that a
general power of attorney for property is never necessary. It is not
always a good idea, simply to avoid giving a power of attorney, to
give someone full access to your accounts - including the ability
to withdraw all funds.
If you own individually held, or jointly held
assets like real estate, for example, you will still need to consider
giving each other power of attorney so that transactions can take
place if either of you becomes incapable. Other unexpected situations
may arise when you may need someone else to act on your behalf. Depending
on your ages and health, it might be advisable for each of you to
consider having a power of attorney naming a third party to manage
your affairs if both of you become mentally incapable, or one of you
should die. You and your advisor should discuss the tax and legal
consequences of transferring assets to joint ownership.
REVOCABLE TRUSTS
A revocable intervivos trust can be used in
place of a power of attorney. This type of trust is created during
an individual's lifetime, and is a trust under which the individual
has retained the power to end the trust and demand that the trustee
return the property to his/her. Some elderly individuals create a
revocable intervivos trust when they no longer wish to personally
manage their assets, or in anticipation of a period of time when they
may be unable to do so (e.g., when faced with a lengthy recuperation)
. These clients can demand the return of the assets if they wish to
do so in the future. Unlike a power of attorney for property, the
transfer of assets to a trustee of a revocable intervivos trust does
involve giving up title to those assets (at least until the trust
is revoked).
There are tax implications connected to this
alternative that should be discussed with a legal adviser.
Conclusion:
A power of attorney is only one aspect of a comprehensive estate plan.
Legislation is continually changing, so a review of your powers of
attorney and your will are strongly recommended. You should consult
a lawyer in the appropriate jurisdiction before executing any of these
documents.
We gratefully acknowledge this article
from Trimark Investment Management Inc. |
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Notice:-
Fiscal Agents Financial Services Group are not engaged
in rendering tax, accounting or legal professional services or advice.
The comments in this Executive Notes are not intended, nor should
they be relied upon, to replace specific professional advice. Before
acting on material contained herein, readers should seek advice
that is appropriate to their personal circumstances from a professional
advisor.
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