Just like a will, a power of attorney allows someone else to carry out your wishes when you’re unable to do so. And, just 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.
A power of attorney authorizes one or more people to manage your money and property for you. The person you appoint does not have to be an actual attorney or lawyer – you can choose 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 while you are mentally capable of managing your own affairs. It ends if you 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 you plan to be out of the country. It starts either as soon as you sign it or on a date you choose.
An enduring/durable or continuing power of attorney allows your attorney to continue acting for you if you become mentally incapable. It starts either as soon as you sign it or only when you become mentally incapable (such as a springing power of attorney). The standard for incapacity should be specified for a springing power of attorney.
You can authorize your attorney to take care of a range of tasks on your behalf, such as managing day-to-day banking, signing cheques, buying or selling real estate, and borrowing money. Your money and property continue to belong to you – you’re just delegating authority to manage it. It’s important to note that your attorney cannot change your will, change a beneficiary you’ve named on a life insurance plan or give a new power of attorney to anyone else to act for you.
That said, because your attorney has such important responsibilities, it’s a good idea to ask a lawyer who is familiar with your province’s or territory’s power of attorney legislation to draft your document. A lawyer can ensure that your power of attorney is valid, explain how to monitor your attorney’s actions, and tell you how to revoke or change your power of attorney. A lawyer can also incorporate restrictions that limit what your attorney can do.
A power of attorney grants considerable authority.
Once you’ve chosen someone, have a candid conversation about why you’d like them to take on this role and what their responsibilities will be. Emphasize that an attorney is legally obligated to act in your best interests at all times and can be liable for a breach of their duties. And talk to your prospective attorney about your financial preferences and wishes. The better your attorney understands how you currently manage your money and property, the better he or she will be able to complement your 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 your attorney can work well, but it can also lead to disputes that affect the smooth management of your 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 your first attorney(s) no longer can or no longer wishes to fulfill his or her duties.
If there isn’t anyone you feel can adequately perform the responsibilities of an attorney, or if your financial situation is complicated, you have the option of appointing a financial or legal professional, though you will likely have to pay for the professional’s services. As well, a family member or friend acting as attorney could also be paid or be eligible for compensation for this role.
Your advisor can provide more information about powers of attorney and refer you to a lawyer who can help you understand the benefits and risks. If you decide to appoint a power of attorney, ask your financial institutions about their rules for working with attorneys and monitoring accounts. In addition, continue to review your own financial records on a regular basis for as long as you are able.
A power of attorney can give you one less thing to worry about. Even with an effective power of attorney in place you can still manage your own financial affairs, so long as you 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 your 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.