ARTICLES & REVIEWS
Power of Attorney – Transferring responsibility your way
London Free Press
Imagine handing over full responsibility and authority for your finances to another person. Now, consider being that person, trying to do the “right thing”, will little or no written direction in advance. This is often what happens with a financial power of attorney.
The Power of Attorney (POA) between the “donor”, which is you and the “attorney” the person you appoint to act for you, can be a smooth process.
There are three key areas to make this process a success. One, understanding how and when the POA comes into effect, two, recognizing challenges and potential liabilities your attorney can face, and three, building ways to protect both of you.
As the donor, you get to choose the effective date. This date could be immediate, a future date, or a “springing” or “contingent” POA, tying the effective date to specific event or trigger. The goal is to have the attorney empowered to act at the appropriate time.
With an immediately effective POA, all powers and authority over your property and finances can be given to the attorney once the document is signed. Often this provides the necessary flexibility as some of the tasks can be deferred. This gives the attorney the ability to assume progressively larger roles as needed.
A “springing” or “contingent” POA frequently involves the question of mental incapacity. With a “springing” or “contingent” POA you retain authority over all your financial affairs while you are capable. Although this sounds like a great POA, establishing mental incapacity can be very time-consuming, complicated and stressful, involving health care providers, other professionals and sometimes the courts to declare incapacity. In the interim, the management of your business interest and investments could be neglected. Often, linking the POA trigger other than mental incapacity is preferable.
A POA directly affects you and the donor. Liabilities can arise where an immediate effective POA which include a requirement that all financial activities conducted on behalf the ‘donor’ be reported to him and her. As you can appreciate, the courts are filled with situations where the ‘attorney’ has not lived up to the responsibilities, whether it is doing questionable transactions or doing nothing at all. It is imperative that everyone understand their role, and failure to do so may open up liability issues that the courts often need to work out. This is not a positive process for anyone.
Whether the POA is effective immediately or is to be triggered by a specific stipulation it still takes some planning. Here are some techniques that may help this process be successful:
Store the originals: Create multiple original POAs and leave them at your lawyer’s firm. Tell your attorney and at least one or more close family members/friends where they are located.
Control the Release: Provide a “Direction to the Law Firm” that sets out the releasing of the POA to the attorney(s). Your lawyer can help identity appropriate circumstances for the release of the POA.
Authorize Payments for Legal Appointment: Your Attorney needs to be clear on the appointment and obligations for fulfilling the role and the accurate completion and keeping of records.
Financial Advisor: Indicate your preferred Financial Advisor for the management of your investments. The Financial Advisor may have the information to help address client wishes around distribution of funds, RESP and gifting.
Joint Assets: Provide clarity on what should happen to joint asset funds.
Record Keeping Directions: Direct your attorney to provide regular financial statements to named individuals who have an interested outcome of your financial matters to ensure they can ask appropriate questions.
It is encourage that you discuss a POA with your lawyer and/or professional advisor. Your Financial Advisor should be asking you about this to ensure your wishes are carried out. Planning now will help your attorney and avoid unwelcomed situations.
