Powers of attorney: When should your power of attorney be effective?
By Seth Nerman, LLB, Wealth Planning Group
Recently, Fred told his friends George and Jane that his mother was no longer capable of managing her financial affairs. Since she had no power of attorney, Fred had to apply to court to be appointed to look after her affairs, a costly and time-consuming process that was hard on the family. Fred also complained that he would have to report back to the court, potentially every year, to demonstrate that he is handling his mother’s affairs properly.
Realizing they needed to address this in their own planning, George and Jane met with their lawyer, who recommended they each prepare an enduring power of attorney – a signed document giving legal authority for someone else (generally referred to as an “attorney”) to manage their assets and financial affairs on their behalf, with an express statement that it is to continue to be effective after they become mentally incompetent. The lawyer noted that this would eliminate the need for someone to apply and report to court (although she mentioned that in Quebec, a person appointed under a “mandate in case of incapacity” must still apply to court under a “homologation” process to confirm incapacity and the validity of the mandate before he or she can act).
George and Jane decided to appoint each other as the primary attorney and their son Elroy as their alternate, since he was responsible and knowledgeable. However, out of concern that Elroy might be tempted to act prematurely, they thought their powers of attorney should become effective only when they are confirmed to be mentally incompetent.
The lawyer pointed out that a power of attorney that takes effect only when a triggering event occurs, often referred to as a “springing” power of attorney, is permitted in most provinces. However, she encouraged them to reconsider and have their powers of attorney effective on signing instead, noting concerns with springing powers of attorney such as:
- Third parties such as financial institutions will require evidence of mental incapacity to confirm that the power of attorney is effective before they will accept directions from the attorney appointed. In addition to loss of privacy regarding a personal matter, this could lead to unnecessary delays.
- The document would be of no use if their incapacity was physical, rather than mental, or if George and Jane needed someone to act on their behalf while they were away for an extended time, such as when they spend their winters in Arizona.
- A “springing” power of attorney suggests there are concerns about the trustworthiness of the person being appointed. Given the powers an attorney would have, it is important to choose attorneys who are completely trustworthy.
George and Jane considered their lawyer’s comments and realized that they are trusting their son to act in their best interests while they are mentally incompetent, so they felt comfortable having their powers of attorney effective immediately on signing so that he could act as and when needed.
The lawyer added that if they wished, it may be possible to have their documents held in safekeeping by a professional, with instructions as to when the documents can be released.
George and Jane discovered there are many important considerations when planning for incapacity.
Talk to your advisor about your planning.