However, Canadians are not as efficient at being prepared for times when they’re no longer able to make their own decisions. Less than a third of Canadians have a power of attorney (or protection mandate in Quebec) in place to make financial decisions on their behalf . This oversight could bring considerable problems to family members further down the line.
Let’s take a look at how a power of attorney works, how to set one up, what happens if you don’t have one and why it should be part of your overall estate planning.
What is a power of attorney for?
A power of attorney for property is a legal document you sign to give authority to someone (or several people) to make financial decisions on your behalf while you’re still alive.1 Your attorney is quite different from the executor or personal representative of your estate.2
To sign and set up a power of attorney for property, you need to have the mental capacity to understand what it does.
There are different types of power of attorney for property that could be available to you, depending on where you live, but in general, there are three types of power of attorney for property:
- A non-enduring power of attorney, which ends if you become mentally incapable of managing your own affairs.
- An enduring or continuing power of attorney, which continues even if you become mentally incapable.
- A springing power of attorney, which only comes into force upon a stated condition being met, such as obtaining a certificate from a physician that you no longer have decision-making capacity
Under most powers of attorney for property, your attorney will have control over all your financial affairs, but you can limit your attorney’s authority to specific assets or accounts.
Your attorney cannot make a new will for you or change the existing one, nor can they change any of your beneficiaries. In most cases they can’t pass their role as attorney on to someone else.
In most provinces or territories, you can also arrange for someone to make medical and other non-financial decisions on your behalf, if you became mentally unable to make those decisions for yourself. Depending on where you live, this document could be called a power of attorney for personal care, directive, personal directive, health care directive, advanced health care directive, representation agreement or mandate.
Having this kind of document in place can be equally as important as having a power of attorney for property.
What happens if you don’t have a power of attorney?
Sadly, becoming mentally incapable is more prevalent than you might think. It’s estimated that there are around 600,000 Canadians living with some form of dementia, with 124,000 new cases of dementia diagnosed each year. It’s predicted that, by 2030, close to a million Canadians will be living with dementia. You could also become mentally incapable due to some other form of illness or as a result of an accident.
If you’re among the two-thirds of Canadians who don’t have a power of attorney for property or personal care, and you lose your mental abilities, it can become complicated for your loved ones to manage your financial affairs and make decisions regarding your medical treatment. If you agree to a mental assessment, are found to be mentally incapable and give your consent, then there may be a process available to have someone (typically a provincial agency, such as the Public Guardian and Trustee or its equivalent) appointed to act for you, especially on an interim basis.
If you do not agree to an assessment, disagree with the findings of an assessment or need someone to act for you on a permanent basis, the process can be trickier. Your family or friends would need to apply to the courts for an order appointing someone to act as your financial guardian and/or personal guardian (the actual title will vary depending on where in Canada you live). This process can be expensive and complex, so it pays to consult with a lawyer first.
By including both a power of attorney for property and a power of attorney for personal care in your overall estate planning, you can prevent your family from having this added stress and expense.
How to set up a power of attorney
Your lawyer (or in Quebec, your notary) can draft your documents for you. If you don’t have a lawyer, ask your financial advisor to recommend one, or check with your local law society to find a lawyer near you. Some law societies have lists of specialists; look for a lawyer with estate planning experience.
The legal requirements for executing a valid power of attorney can vary, depending on where you live, but your lawyer will be able to walk you through it.
Pros and cons of a power of attorney
While there are obvious advantages to having a power of attorney, there are also some potential pitfalls you need to be aware of.
Advantages of powers of attorney:
You know that your financial and health care needs will be looked after if you become unable to make those decisions for yourself.
They are flexible; you can appoint one, two or more people to act on your behalf. You can also allow them to act jointly or separately. This can reduce the chances of any of them acting in their own interests rather than yours.
You can be very specific about how your attorney can manage your finances and health decisions.
If you set up an enduring power of attorney, their ability to look after your finances and health decisions continues even if you lose mental capacity.
You have the peace of mind of knowing that, at such a potentially difficult time, your family won’t have the added stress and expense of having to go to court to look after your affairs.
Disadvantages of a power of attorney:
It can lead to mismanagement of your property or health care if the person you appoint is not trustworthy or capable enough.
If you appoint more than one attorney, they could disagree about the best decisions to make for you, which could have a negative impact on your well-being.
You need to reassess your power of attorney on a fairly regular basis, to ensure that it still suits your needs. An out-of-date power of attorney can be a hindrance rather than a help.
Choosing the right person for your power of attorney is essential
Choosing the person who will potentially be in charge of your finances and well-being is a serious issue. Before making that decision, you should ask yourself a few key questions about the person or people you’re considering for the job:
- Are they willing to be your attorney?
- Will they have the time to do it?
- Are they able to manage your finances well?
- Are they trustworthy?
- Do they understand your wishes regarding your health, and agree with them?
Do they live close by? Attorneys should ideally live where you live, or at least the same province or territory (you can find out why here).
Once you have chosen your attorney (and they’ve agreed to the role), have a discussion with them about how you want your finances and health care to be managed, along with what’s expected of them. It could help to send them this article on the duties and responsibilities of powers of attorney for property. It could also make sense for them to discuss this with your lawyer or their own lawyer.
If you’re unable to choose a suitable attorney from among your trusted family and friends, you could hire a legal or financial professional (or a licensed trust company) to do this for you. You will, of course, have to pay for this service. Find out more about choosing a power of attorney.
Building a power of attorney into your estate planning
Estate planning should be an intrinsic part of your overall financial plan. Your IG Advisor can recommend ways to help ensure that your loved ones receive everything you have planned for them, in the most tax-efficient way, and help you to organize your charitable giving in the most effective way.
They can also recommend a lawyer to help you draw up and maintain a will and a power of attorney. Call your IG Advisor today to set up a meeting to discuss your estate plan. If you don’t have an IG Advisor, you can find one here.
1 In Quebec, a power of attorney for property is called a mandate, and the person you appoint to act for you is a mandatary.
2 In most of Canada, the personal representative of an estate is called the executor or administrator. In Quebec, the legal term is liquidator. In Ontario, the term is estate trustee..
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Consultant.