Did you know your family (even your spouse!) can’t automatically sign legal papers for you if you get sick? A Power of Attorney will solve this problem for you. Just want the key takeaways? Scroll to the bottom for the TLDR.
What is a Power of Attorney?
A Power of Attorney is a document that appoints someone you trust to help you with your legal and financial affairs.
The person you name (called an “Attorney”) can help you pay bills, buy or sell property like your home or your car, or deal with your bank accounts, pension or taxes.
We use the word Attorney in Canada to refer to the person you have appointed to help you – in this case, the word “Attorney” doesn’t mean “lawyer”, as you sometimes hear it used on television.
An Attorney follows your instructions, and acts in your best interests. An Attorney must follow the duties set out in the Power of Attorney Act, in the common law, and in the Power of Attorney itself.
Types of Powers of Attorney
There are several types of Powers of Attorney:
- standard Power of Attorney
- enduring Power of Attorney
- springing Power of Attorney
Standard Power of Attorney
A standard Power of Attorney is a simple, basic document appointing someone to help you with your legal and financial affairs. These documents are not commonly used anymore because they have a few important limitations.
The most important problem with these Powers of Attorney is that they are automatically terminated if you become mentally incapable. They are meant to be used only when you are capable yourself. So they are really meant only for short-term needs.
Client story
Terry decided to take a gap year and travel to Australia for a year. She wanted her mom to pay her bills while she was gone, but she wasn’t ready to give her mom a permanent, enduring Power of Attorney. She made a standard Power of Attorney instead, expecting to revoke it when she returned to BC.
Standard Powers of Attorney also need to be renewed every three years if you intend to use them for Land Title Act purposes. For example, let’s go back to your trip abroad. Let’s say you loved your school so much you decided to stay for a masters degree. You want your mom to sell your condo, but she can’t, because you made your standard Power of Attorney over three years ago, making it invalid for Land Title Act purposes. This limitation is in place as an extra layer of security for the Land Title Office.
Enduring Powers of Attorney
Enduring Powers of Attorney are the most common type of Power of Attorney. We rarely ever make any other kind these days.
An Enduring Power of Attorney is one that lasts until you die, even if you become incapable. If you appoint your spouse as your Attorney under an Enduring Power of Attorney and then you later have a stroke, your spouse can still pay your bills and deal with your property.
Client story
Bob and Joan are in their 50’s. They are in good health mentally and physically, but they want to make sure they can help each other out if one of them gets sick. Bob’s family has a history of high blood pressure, and Joan doesn’t want to have title to their home frozen if he has a stroke. Joan’s family has a long history of cancer. They made Enduring Powers of Attorney so they can help each other out in case of emergency. They even appointed their kids as backups!
Springing Power of Attorney
A Springing Power of Attorney is a very rare kind of Power of Attorney. It is only meant to be activated when certain things have happened.
The most common form of Springing Power of Attorney are those that say “you can only use this document if you get two doctors to provide written statements saying I am mentally incapable”.
Client story
Harold was 80, and in quite good health. He was proud that he was still managing on his own. He was thinking about moving into care. He didn’t have a big family. The only member of his family he kind of trusted was his nephew George, but he wanted to make sure George wasn’t going to start getting carried away taking over his finances. He decided to make a Springing Power of Attorney that could only be used if George could prove Harry was incapable, using the opinions of two doctors.
These documents are very tricky, and can often fail.
A very common reason they fail is because it is incredibly difficult to get two doctors to declare you mentally incapable. Declaring someone mentally incapable has very serious consequences, and doctors won’t do this anymore without very good evidence that it is necessary and appropriate.
General v. Restricted Powers of Attorney
Each of these three types of Powers of Attorney can be a general Power of Attorney or a restricted (sometimes called a limited) Power of Attorney.
General Powers of Attorney
A general Power of Attorney is one that has no restrictions on what it can be used for. It’s just a straightforward document setting out who can act for you and when. This is the most common form of Power of Attorney.
Restricted, or Limited Powers of Attorney
These Powers of Attorney contain strict limitations on what the Attorney can do with them.
For example, they might allow the Attorney to sell your car, but not your home. They might allow your Attorney to close out your main bank account, but not create a new one.
These documents are rare, and should only be used in very specific, needs-based circumstances. Great care should be taken when drafting them to ensure they work properly.
Why should you make a Power of Attorney?
Because there are no more automatic rights allowing your family to deal with your affairs.
This sounds odd, but think about it this way:
We don’t know who your people are. We don’t know which of your kids we should trust. Should we trust the loud one who bosses everyone around? Or the one that showed up first? Or the quiet one we haven’t met yet?
We don’t really even know if we should trust your spouse – is your spouse someone you have been married to forever? Can they balance a chequebook? Did you pick them up in Vegas two weeks ago? Are you in the middle of divorcing them? If this is your third spouse, maybe we should be listening to one of your kids instead?
You can see why it could get tricky for outsiders to know which of your people to listen to. The liability for an asset-holder who gets it wrong is significant. So we aren’t going to guess. You need to clearly document who has the right to deal with your affairs so we know who you want us to rely on.
What happens without a Power of Attorney?
If you are not capable, and you didn’t make a Power of Attorney, then we are all in a pickle. You, most of all.
Generally, your assets will be frozen until someone can get a court order allowing someone the right to deal with your assets. There are several kinds of courts orders, including one that appoints a person as your committee. All court order are expensive and time-consuming to get.
Client story
Allie had an aggressive form of brain cancer in her mid-50’s. The tumor wasn’t diagnosed until it was too late to do anything about it. By the time she received her diagnosis, the tumor had made it impossible for her to understand her assets, or even her family members. It was too late for her to make a Power of Attorney. The only way her family would be able to pay for her ongoing care was to sell her house, and now she couldn’t understand how to do that either. Her family had to apply to court for a committeeship order. This took 5 months and cost over $10,000.00.
It’s also possible that the government – in the form of the Public Guardian and Trustee – will take over your affairs.
In almost all of these scenarios you must be legally declared incapable. That is a step that strips you of your rights. It is almost impossible to undo this step.
It’s possible that your family might be able to pay for some things for you out of their own pocket, but they wouldn’t be able to get reimbursed for that until after you die. Do you really want to put your family in the position of having to pay for your care out of their own pocket? What happens when they can’t, or won’t?
Your spouse might be able to sign for you on a joint account, if the account value is under a certain value. But if that account is worth more than the acceptable amount, the bank will likely require a Power of Attorney, even from your spouse.
Key Takeaways
Here are the key takeaways you need to know about Powers of Attorney:
- we don’t know who your people are – your Power of Attorney tells us which of your people we should trust
- your family doesn’t have automatic rights to deal with your assets on your behalf – not even your spouse!
- if you don’t have a Power of Attorney, the next step for your family is a court order
- there are several kinds of Powers of Attorney available depending on your needs and wishes
Ask us for information on how this incredibly important document could benefit you.
All client stories are true situations, but the names have been changed.