It is possible that at some point in our lives we may become incapable of making decisions for ourselves, either temporarily or permanently, due to injury or illness. By making a power of attorney, you can allow others to make decisions on your behalf should you become incapable.
When you think about your assets in the context of estate planning, it is important to distinguish between a will and a power of attorney. A will deals with disposition of a person's assets after death and takes effect only on death. In contrast, a power of attorney is used during one's lifetime and terminates on death.
There are two types of powers of attorney which are commonly used for persons in Ontario: a continuing power of attorney for property and a power of attorney for personal care. The goal of this Advisory is to provide a brief overview of each of these powers of attorney and to provide practical considerations in planning for incapacity.
LEGISLATIVE FRAMEWORK
The Ontario Substitute Decisions Act, 1992 (the "Act") protects the rights, interests and wellbeing of individuals who become incapable of making decisions about their property or personal care. The Act allows a person some control in making decisions regarding his or her property and in deciding aspects of his or her personal care when the person is no longer capable of making such decisions. The Act protects incapable people from financial or other abuse by creating safeguards. It also sets out the rights and obligations of an incapable person's attorney. "Attorney" in this regard means a substitute decision-maker and not a lawyer.
CONTINUING POWER OF ATTORNEY FOR PROPERTY
General
Under a continuing power of attorney for property, you can give to others the legal authority to make decisions about the management of your property (that is, your assets and financial affairs) which will continue should you become incapable. Your attorney for property has the power to do anything on your behalf with respect to your property that you could do if capable, except make a will. The granting of a continuing power of attorney for property does not limit your power to act on your behalf. Instead, it authorizes an attorney to share that power with you, and to act on your behalf.
The Act defines a person to be incapable of managing property if he or she is not able to understand information that is relevant to making a decision in the management of his or her property, or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision.
Under the Act, if a person does not have a power of attorney for property which is effective after he or she becomes incapable, it may be necessary for family members or other interested persons to apply to court to have a "guardian for property" appointed to manage the incapable person's financial affairs. Unfortunately, the procedure for appointing a guardian for property is lengthy and expensive, and does not allow you to choose who will manage your property or how it will be managed should you become incapable. It also involves court or government supervision of the management of your affairs, which adds additional expense and complexity for the person(s) appointed to manage your affairs. For all of these reasons, we strongly recommend that as part of your estate planning you consider making a continuing power of attorney for property to provide who will make financial decisions for you if you become incapable of making such decisions for yourself.
When does a Continuing Power of Attorney for Property come into Effect?
You can specify that your continuing power of attorney for property comes into effect only upon a specified event (for example, if you are assessed as being incapable of managing property) or that it is immediately effective. Because of the difficulties which often arise in establishing to third parties (such as banks and other financial institutions) that a person is incapable of managing his or her financial affairs and that a continuing power of attorney for property is in effect, continuing powers of attorney for property are usually prepared to have immediate effect. To avoid misuse, they can be held by a trusted third party (often the law firm which prepares it) with a direction providing the terms upon which it may be released.
Providing Direction for Property Decisions
Continuing powers of attorney for property may be either general or limited. A general power of attorney for property can grant the attorney for property broad authority and contain no restrictions on the purposes for which it may be used. On the other hand, a limited power of attorney for property may be restricted to a particular asset or transaction and/or period of time, or provide special directions for the management of your financial affairs. For example, if you are selling an asset but are going to be away on the closing date, you may grant a limited power of attorney for property to another person to act on your behalf on the sale of the asset for the period of time while you are away. Other examples of limited powers of attorney for property include those which provide for the sale or retention of specified assets should the grantor later become incapable, or those which provide specific investment guidelines for the attorney. In addition, if you have signed a continuing power of attorney for property at your bank, it is limited to dealing with matters at the particular bank and is ineffective to deal with your other assets.
In some circumstances, it may be appropriate to have multiple continuing powers of attorney for property. For example, a person may grant both a general power of attorney for property to his or her spouse and a limited power of attorney for property to a business associate restricted to the operation of the business. It is important to note that the authority of your attorney to deal with your assets outside of Ontario will depend on the nature of the asset and the jurisdiction in which it is located. It may be appropriate to have a continuing power of attorney for property for assets in each jurisdiction.
Choosing an Attorney for Property
Under the Act, a person must be at least 18 years old and mentally capable to grant a continuing power of attorney for property. The person(s) you select to act as your attorney(s) for property must be at least 18 years old and mentally capable. If you appoint two or more attorneys, your attorneys must act jointly unless the continuing power of attorney for property provides otherwise. You may also name one or more alternate attorneys to act should the primary attorney(s) you choose not be able to act or to continue to act.
In choosing a person to manage your property should you be incapable of managing it yourself, it is important to consider the nature of your assets and financial affairs, and the ability of your proposed attorney for property to manage them. If you have a spouse and adult children and your assets and financial affairs are relatively straightforward, you may consider appointing your spouse as the primary attorney for property and your adult children as the alternate attorneys. If you have complex business interests, the handling of which your spouse finds daunting, you may wish to consider appointing your spouse.
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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.