When people get older and their mental capacity dwindles, it can be a great relief to have someone else look after one's financial affairs. There often comes a time in our lives when it becomes difficult to keep track of bills and payments and to keep the necessary overview required to make financial decisions. A trusted relative or friend may be willing and able to help when such tasks become more and more cumbersome. A continuing power of attorney for property is an excellent tool that permits the 'grantor' to grant a power of attorney (POA in the following) to a person of their choice who will remain in charge of the grantor's property even in the event the grantor becomes mentally incapable. That is why it is called a continuing power of attorney.
With great power comes great responsibility and on the flip side great risk of abuse. The more encompassing the POA, the more vulnerable the elderly. S. 7(2) of the Substitute Decision Act (SDA) provides that a grantor may authorize the attorney to do anything in respect of property that the grantor, if capable, could do, except make a will. The grantor may also decide to limit the scope of authority to mitigate some of the risks that come with granting a POA. For example, the attorney may only be entitled to deal with certain assets, or the commencement of the power may be postponed to a specific time or event, i.e. when the grantor becomes mentally incapable. Such limitations would need to be clearly written into the POA.
The POA loses its effect of entitling the attorney to act on the grantor's behalf in property matters once the grantor dies.
According to s. 8 of the SDA, the grantor is capable of giving a continuing POA if the grantor
- knows what kind of property the grantor has and its approximate value;
- is aware of obligations owed to the grantor's dependants;
- knows that the attorney will be able to do on the grantor's behalf anything in respect of property that the grantor could do if capable, except make a will, subject to the conditions and restrictions set out in the power of attorney;
- knows that the attorney must account for the attorney's dealings with the grantor's property;
- knows that the grantor may, if capable, revoke the continuing power of attorney;
- appreciates that unless the attorney manages the property prudently, its value may decline; and
- appreciates the possibility that the attorney could misuse the authority given.
A relative, an alleged friend, or even a stranger may fraud the elderly victim by having them sign a POA by misrepresenting its content or scope to them. Such a POA does not meet the above-mentioned requirements and is void. Yet, third parties may rely on the signed POA nevertheless and conduct business with the fraudster. While such transactions are void and legally the sold asset is recoverable, there might be insurmountable practical hurdles to recovery. The asset may simply have disappeared by the time the fraud is discovered. If the asset is a piece of land, there are certain statutory protections against a title transfer by a fraudster. However, if a good faith purchaser who bought the land from the fraudster resells the land and title is registered for the benefit of the next purchaser, the title of the original owner is extinguished.
There even remains a risk of abuse after the grantor has died because third parties with whom the attorney conducts business purportedly on behalf of the deceased grantor may not know of the grantor's death. They may again reasonably rely on the POA presented to them by the attorney. This risk is at this stage of course a risk for the estate of the deceased grantor.
These extreme examples are criminal matters, as they are in clear violation of s. 331 of the Criminal Code 'Theft by person holding power of attorney'.
Another scheme can be conducted with a perfectly valid POA. The attorney may decide not to act solely in the interest of the grantor, as he or she is obliged to do under the SDA. For example, the attorney has the power to make gifts and loans to the grantor's friends. This is deemed to be in the interest of the grantor by the SDA. A limit imposed on such gifts is the unduly depletion of the grantor's property to a degree where it does not suffice to satisfy the support and care of the grantor. Obviously, where this line must be drawn is quite debatable and the attorney has significant leeway under the law. A further restriction to the attorney's power lies in the fact that, if challenged, the attorney must prove that he or she had reason to believe, based on the intentions of the grantor expressed before becoming incapable, that the grantor would have made the gift as well.
The reality is those elderly people who do not have the mental capacity to look after their own assets are also not in the position to challenge the abuse of a power of attorney. They are helpless and rely on better friends or kinder relatives to look after their interests.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.