Whether from a terrible accident or by the grace of old age, you may be alive but unable to manage your finances and assets. To make sure someone is in place to manage your assets, you must prepare a legal document that gives someone the power to act in your place.
Most provinces call such documents Power of Attorney or Enduring Power of Attorney. The terminology can be different depending on the jurisdiction where you live. These documents are essential components to an estate plan.
What is a power of attorney?
A power of attorney is a legal document that authorizes one person to act for another person. A grant of power of attorney allows the attorney to sign legal documents and to make contracts according to the powers granted within the power of attorney. Such documents may give the power to manage your financial affairs to someone immediately or only upon your incapacity. Unless you restrict your Attorney's powers, he or she will be able to do almost anything that you can do concerning your finances.
By law, however, your Attorney cannot change your Will, make a new Will for you, or give a new Power of Attorney on your behalf.
Do I have to use a lawyer to prepare my Power of Attorney?
The law does not require you to use a lawyer's services, but these documents should not be prepared on your own especially if your situation is more complicated.
Whether you use a lawyer or not, you have to be mentally competent at the time the power of attorney was signed. If you anticipate that someone may challenge your Power of Attorney by saying, for example, that you were not mentally capable when you signed it, it would be advisable to consult with a lawyer. You may also want to ask your doctor for a medical report confirming your capacity.
Your power of attorney ceases to be effective upon death. Your Will then comes into force. The person you will entrust with your assets is called your attorney.
Who should you make your attorney?
The ideal attorney has the following characteristics:
- Has experience managing money
- Will manage your assets to protect you and your estate
- Is comfortable dealing with lawyers and accountants
- Can commit to years of managing your assets
- Has the time to pay your bills
- Has the time and patience to communicate with the people who take care of you.
Often, the same person you name as your executor is a good choice for your attorney.
What happens if there is no enduring power of attorney?
If you do not have an Enduring Power of Attorney when you lose your mental capacity to manage your own affairs, then the Public Trustee takes over your affairs until someone else is appointed by the courts. No one, not even your spouse or a child, has the legal power to manage your affairs in the absence of an Enduring Power of Attorney or a court order.
In this case a committee is appointed by the courts. This requires a court application setting out the circumstances of the case. Also, affidavits have to be obtained from two doctors proving mental incapacity. Such a court application is time consuming and expensive.
Can I have more than one person as my attorney?
You can name one Attorney or more than one. If you appoint more than one, you can require that they act together (jointly) or you can have them act separately as well as together (severally and jointly). If you include this phrase, either of your Attorneys will be able to act alone on your behalf. If one is away or sick, for example, the other would still be able to sign cheques and give instructions on your behalf. If you do not indicate that they can act severally, they will have to do everything together.
If there is a trust issue with regard to any one attorney, it is wise to have both attorneys acting together, that way they can keep an eye on each other and each has access to financial records to make sure that the other is acting properly. For most people this can be quite cumbersome, though, because both attorneys have to sign legal documents, cheques, etc. This could be a problem if the attorneys live in different geographic areas.
If you designate more than one, you should include some form of disagreement resolution.
Even though you have named two, you should still take the precaution of an alternate Attorney, in case neither of them can act for you.
Federal Privacy laws have made Power of Attorney’s more important
If something happens to you and you are no longer capable of making sound financial decisions, do not assume that your spouse, parents or kids will be able to make those decisions for you. Your financial information is private. Think about it, some people don’t want their spouses, kids or parents to know about their financial affairs let alone make decisions for them. The Federal Privacy Act goes a long way to protect your information from getting in the hands of people you you don’t want having access to private and personal information.
The best way to ensure that you get to pick the person you want to make financial decisions for you in case you can’t is to have an enduring power of attorney.