For residents of Quebec, view our Quebec edition.
With a power of attorney for property, one individual (the attorney) makes financial decisions on behalf of another (the grantor). While a will names an executor to administer the estate of a deceased individual, a power of attorney grants decision-making authority while the grantor is still alive. Like a will, it’s an important part of a comprehensive financial and estate plan. Yet powers of attorney are often less understood than wills, so it’s worth looking more closely at how they work.
What’s a power of attorney?
A power of attorney authorizes one or more people to manage money and property on behalf of someone else (the grantor). The person appointed doesn’t have to be an actual attorney or lawyer — they can be a family member, friend, or professional. While each province and territory has different legislation governing powers of attorney, there are two basic types.
Ageneralpower of attorney takes effect only when the grantor is mentally capable of managing their own affairs. It ends if the grantor becomes 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 period, such as the dates the grantor plans to be out of the country. It starts either as soon as it’s signed or on a specific date.
Anenduring/durableorcontinuingpower of attorney allows the attorney to continue acting if the grantor becomes mentally incapable. It starts either as soon as it’s signed or only when the grantor becomes mentally incapable (such as a springing power of attorney). The standard for incapacity should be specified for a springing power of attorney.
What can an attorney do?
An attorney can be authorized to take care of a range of tasks on the grantor’s behalf, such as managing day-to-day banking, signing cheques, buying or selling real estate, and borrowing money. The money and property continue to belong to the grantor — they’re simply delegating authority to manage it. It’s important to note that an attorney can’t change the grantor’s will, change a named beneficiary on a life insurance plan, or give a new power of attorney to anyone else.
That said, because an attorney has such important responsibilities, it’s a good idea to ask a lawyer who’s familiar with the grantor’s provincial or territorial power of attorney legislation to draft this document. A lawyer can make sure that a power of attorney is valid, explain how to monitor an attorney’s actions, and advise how to revoke or change a power of attorney appointment. A lawyer can also incorporate restrictions that limit what an attorney can do.
Who’s the right person for the job?
A power of attorney grants considerable authority. Questions to consider before selecting an attorney include:
- Is this person willing to be an attorney?
- Can this person be trusted with personal finances?
- Is this person reliable, living nearby, easy to contact, and readily available?
- Does this person have a good understanding of financial matters?
- Are there financial, health, or family challenges that may interfere with this person’s duties?
- Does this person have time to dedicate to being an attorney?
Once someone has been chosen, a candid conversation about this role and its responsibilities is crucial. Attorneys are legally obligated to act in the grantor’s best interests at all times and can be liable for a breach of their duties. The grantor should talk to their prospective attorney about their financial preferences and wishes. The better the attorney understands how the grantor currently manages money and property, the better the grantor will be able to complement the attorney’s approach. Furthermore, some provinces require the appointed attorney’s signature confirming acceptance of the role.
Keep in mind that appointing more than one person as an attorney can work well, but it can also lead to disputes that affect the smooth management of the grantor’s finances. However, having two or more attorneys acting jointly could reduce the risk of fraudulent activities. It’s prudent to appoint a successor or alternate attorney who can step in if the first attorney can or no longer wishes to fulfill the attorney’s duties.
If there isn’t anyone who can adequately perform the responsibilities of an attorney or if the grantor’s financial situation is complicated, there’s the option of appointing a financial or legal professional, though the professional’s services likely come at a cost. As well, a family member or friend acting as attorney could also be paid or be eligible for compensation for this role.
Speak with an advisor
An advisor can provide more information about powers of attorney and refer individuals to a lawyer who can help them understand the benefits and risks. Once a power of attorney is appointed, financial institutions can be consulted about their rules for working with attorneys and monitoring accounts. In addition, the grantor can continue to review personal financial records on a regular basis for as long as the grantor is able.
A power of attorney can give the grantor one less thing to worry about. Even with an effective power of attorney in place, the grantor can still manage personal financial affairs, so long as they’re 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 the grantor’s 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.
