Many of us sign power of attorney documents ("POAs") in haste. It seems like necessary 'add on' to making a Will, but in my view, POAs are just as important, if not more impactful than your Will. I spend a lot of time in estate planning meetings with clients speaking about sickness and mental incapacity and who their substitute-decision-makers should be, and what kinds of powers and restrictions should be put in place to best protect my client's interests.
For the purpose of this article, I am going to focus on the power of attorney for property, or what many refer to as the financial power of attorney, and not the power of attorney for personal care. These are just some of the powers and authority you are granting to whomever you appoint as your attorney for property in your POA:
1. He or she will control all of your shares in any private companies or businesses you own. If you are a majority shareholder, consider this person stepping into your shoes and potentially having the controlling interest on your behalf.
2. He or she can direct your investment advisor in respect of your investments.
3. He or she can obtain a copy of your Will (but will not be able to make changes to it).
4. He or she will have full control over your bank accounts and can make withdrawals without question by the bank.
5. He or she can represent you in any litigation or other court proceedings that you may be participating in.
6. He or she can sell your home or any other real estate you own.
RESTRICTIONS & CONDITIONS
Nearly every standard form POA document has a section for restrictions and conditions and in almost every case, this section is blank or says 'none'. My instinct tells me that people are just not spending the time to think this through and the lawyer-client discussion is not addressing this in any detail. In many cases, if asked, people would impose restrictions in their POA, or may even consider signing limited POAs in favour of different people for different aspects of their affairs. For example, many private business owners may wish for someone more familiar with their business affairs to be appointed as their substitute in the business as a shareholder, but their spouse or child to be appointed to manage their personal assets for them. Keep in mind that while you are alive, whatever decisions are made on your behalf under the POA will likely have an impact on you. Providing written guidance even in the form of restrictions will in my view assist the person acting for you, make decisions that you would approve of.
WHEN DOES MY POA BECOME EFFECTIVE?
Many standard form POAs become effective upon signing when in fact our expectation is that they will only be in force and effect upon our incapacity. This means that all of the above-noted powers and authority are being granted to someone irrespective of your mental capacity. Is this what you desire? If not, consider making it clear in the POA document that it is to become effective only on your incapacity, and furthermore, how your mental capacity to manage your financial affairs shall be determined.
WHO'S WATCHING? SHOULD REPORTING BE PUT IN PLACE?
If you become incapable of managing your financial and other property affairs in your lifetime, you will also be incapable of actually monitoring the actions of the person acting under your POA. Unless someone challenges or questions what your attorney for property is doing, their activities usually go unmonitored. Because this is often the norm, most people, when managing an incapable person's finances do not keep adequate records or receipts and it becomes difficult for them to justify all of their actions if questions later arise. To keep these people accountable, I suggest including some kind of reporting mechanism directly into the POA document, for example, that the person acting should informally report to another family member at some regular interval, such that there is some transparency of information.
FINAL THOUGHT
There is a reason the document starts with the word "Power". It can enable someone to do anything that you yourself could do in respect of your assets (except make or change your Will), so it is important that you spend time thinking about who should have this authority, when it should become effective, who else should have visibility into what actions are being taken, and what restrictions and other conditions you may wish to include.
This blog post was first published in Legacies & Liberties (Looptra Nixon LLP). Legacies & Liberties is a brief canvasing of the topic presented and should not be relied upon as professional advice in making any personal or business decisions. Always consult with a licenced legal professional before making any decisions regarding your own personal or business needs. The author takes no responsibility to update any of the information presented in this article. All rights reserved. © Looptra Nixon LLP 2017