What is a Power of Attorney and why does that matter?

What is a Power of Attorney and why does that matter?

The following is a guest post by LegalWills.ca, a proud partner of My Own Advisor.

A power of attorney is a legal document that you sign to give one person, or more than one person, the authority to manage your money and property on your behalf.

This matters for many reasons, and you’ll read about all of those reasons in today’s post.

Back to basics – what is a Power of Attorney?

There are many different types of Power of Attorney (PoA). The one thing they have in common is that they legally appoint somebody to act on your behalf of make decisions on your behalf. It is important to note that any PoA is in effect while you are alive and is immediately cancelled the moment you die. You cannot have a PoA act on your behalf after you have died. At this point your Will comes into effect, and you are represented by your Executor.

Further Reading:

What is an Executor? What work do they do?

There are two general classifications of a Power of Attorney: the medical (healthcare) PoA and the financial PoA.

A healthcare PoA names somebody to make medical decisions on your behalf if you are unable to speak for yourself. It usually works alongside an “Advance Directive” where you have described your general principles of medical treatment, and this serves as a guide to your healthcare representative, or “substitute decision maker” or “healthcare proxy”. If you name a single decision maker, then you prevent family disputes arising when different family members have different ideas for the treatment you should receive. These disputes can quickly escalate into the courtroom. This type of Power of Attorney is sometimes colloquially referred to as a “Living Will”.

For the purposes of this article, we are going to focus on the other type of Power of Attorney, your financial Power of Attorney.

What is a Financial Power of Attorney?

A financial Power of Attorney names a person to take care of your finances on your behalf. There are two general categories: a Specific Financial Power of Attorney and a General Financial Power of Attorney.

A Specific Financial Power of Attorney is set up to allow somebody to handle a particular transaction on your behalf. This is commonly used for example if you are overseas, and you need somebody to sell your car for you. You can create a Specific Power of Attorney that gives somebody the authority to sell your car but gives them no other financial authority over any other financial assets. As soon as the car is sold, then the Power of Attorney has served its purpose and no longer has a function.

A General Financial Power of Attorney is more of an estate planning tool. It allows somebody to take care of all of your financial affairs. This type of document can either be “immediate” coming into effect on the date it is signed, or it can be “springing” which means that it only comes into effect if you were to lose capacity to handle your own affairs. This is also referred to as a “Durable” or “Enduring” Power of Attorney, meaning that it is still in effect even if you have lost capacity.

It is important to note that if you prepare an Enduring Power of Attorney, it must be written at a time when you have full cognitive capacity, to come into effect if you were to ever lose capacity.

Who needs a Financial Power of Attorney?

A “Living Will” and a “Financial Power of Attorney” are considered by most people to go with your Last Will and Testament to create a full “estate plan”. These three documents are the core components of an estate plan that everybody should have.

However, although it is a certainty that you will die, and that you need a Will, it is quite possible that your Power of Attorney may never come into effect. You may never need somebody to take over your finances on your behalf. But if you are ever in that situation, then it is a critical document.

Like a Last Will and Testament, a financial and medical Power of Attorney are documents that should be written when you become an adult. They can be updated from time to time throughout your life and stored with your other important documents. You should not wait until you “need” a financial Power of Attorney, because at this point it can be too late.

When does the Power of Attorney come into effect?

There are many circumstances by which you can lose capacity. The most common is for an aging parent who faces cognitive decline through dementia or Alzheimer’s. A child may want to take over responsibility for the parent’s finances simply to protect them. It is very sad to hear of seniors being targeted by unscrupulous phone calls or visitors to the house. Not all senior exploitation is obvious, it can be extreme sums of money going to charities, or subscriptions, or investments.

This is where the invoking of a Power of Attorney can be tricky. When you see that your parent has signed up for something that in your mind is a complete waste of money. Have they lost the capacity to make rational decisions? Perhaps they have their cognitive faculties but are easily persuaded. They may be lending money to friends, perhaps they have a right to do this, or perhaps they need to be protected.

There are of course other unfortunate circumstances that can trigger the activation of a Financial Power of Attorney. If you are involved in an accident and hospitalized. You may go into an extended coma and need somebody to pay your bills on your behalf. You may have some cognitive decline as a result of the accident and struggle to keep your finances straight. It might make sense for somebody to take care of your financial affairs, even temporarily, until your cognitive capability is restored.

What happens if you do not have a Financial Power of Attorney?

At LegalWills.ca we frequently hear from many people with family members who left things too late. “My mother has dementia and has moved into a care home; can I create a Power of Attorney for her?”

It is extremely difficult to assume responsibility for somebody who has lost capacity. As you can imagine, there may be other family members with an interest in this situation, and how would anybody know that you were the preferred choice for managing these financial assets. This type of situation can quite quickly become desperate with nobody able to pay bills, cancel utilities, manage investments. Everything is so much easier with a financial Power of Attorney in place.

You may think that if all assets are jointly held, then a financial PoA is unnecessary, but issues can still arise when both signatures are required for a particular transaction. For example, as a couple age, and one partner moves into a care home with cognitive decline. The other partner may wish to downsize their home, but the sale of the home requires both signatures. This would be possible with a Financial Power of Attorney in place, but extremely difficult without.

A word on Power of Attorney abuse

Power of Attorney abuse is a significant issue. Your financial representative has very wide-ranging powers. They have unfettered access to your bank accounts and investments. It is not uncommon for money to disappear. There are countless news reports of children stealing money from parents, and even lawyers stealing money from clients.

(you can find many, many of these….I just googled it and found this one.)

This is why it is very important to prepare the document when you are young and capable, and to choose your Power of Attorney representative wisely.

How to prepare a Financial Power of Attorney

There are a few different options for preparing a Financial Power of Attorney. There are some free downloadable forms available, you can speak to a lawyer, or you can use an online service like the one at LegalWills.ca.

No matter the approach you decide to take, and which Province you are in, the signing requirements are similar (but not always the same). At a minimum, you need to sign the document in the presence of two witnesses.

Manitoba has a unique signing requirement whereby a witness must be one of:

  • a person registered or qualified to be registered to solemnize marriages in Manitoba
  • a judge, justice of the peace or magistrate in Manitoba
  • a qualified medical practitioner in Manitoba
  • a notary public for Manitoba
  • a lawyer entitled to practice in Manitoba
  • a member of the R.C.M.P. or a police officer in a municipal police force in Manitoba

In 2020 the signing requirements for New Brunswick changed. The Enduring Powers of Attorney Act requires a lawyer to sign your Power of Attorney for Property document and provide a written statement that they witnessed you sign it.

For all other Provinces the law requires the document to be signed in the presence of two adult witnesses, however, because the document grants wide ranging powers to your representative, some banks have established additional requirements over and above the legal requirements; notably the need for a sworn, signed affidavit of execution signed by a witness in the presence of a Notary.

What is a Power of Attorney and why does that matter summary

Needless to say, creating and maintaining an up-to-date Power of Attorney document is a critical part of good financial management. Here are some closing thoughts on this subject, and why it matters:

Advantages of Power of Attorney:

  • This document makes it clear who will be responsible for your money and property if you can’t manage them on your own, even temporarily.
  • It can be as general or specific as you need it to be.
  • You can choose to appoint two or more attorneys. You can require that your attorneys make all decisions together (“jointly”), or to act together or separately, if one of them is unavailable (“jointly and severally”). You can also appoint alternate or successive attorneys. Note: having two or more attorneys could reduce potential fraudulent use of a power of attorney.
  • A general financial power of attorney allows your attorney to look after your affairs if you are away temporarily or if you need help managing your affairs.
  • An enduring power of attorney allows your attorney to continue looking after your affairs if you lose your mental capacity. If you lose your mental capacity and do not have a valid power of attorney document in place, someone will need to get authority from the court to manage your money and property. This can be time consuming and expensive.

Disadvantages of Power of Attorney:

  • None that we can think of however there are always risks with anything in life: not enough information or limitations in the document could lead to the mismanagement of your finances or to your finances being managed in a way that you do not agree with.
  • If you appoint more than one attorney to act jointly, disagreements between them could cause problems and lead to delays in the management of your financial affairs.
  • If you do not have this document updated/reviewed regularly, your power of attorney document might not meet your current needs or the requirements of the law. This also means the person you previously selected to be your attorney may no longer be the best choice or may no longer be available.

A PoA (along with your “Living Will”) are essential documents are part of a holistic financial plan. These documents among others make up some of the core components of an estate plan that everybody should have.

Further Reading:

Check out this Government of Canada estate planning to-do list.

What is a financial plan and what does it cover?

What is an Executor? What work do they do?

Making a Legal Will in Canada.

As part of my ongoing partnership LegalWills.ca, they are happy to offer my dedicated promo code MOA15 at the time of product checkout for any products.

Canadian Legal Wills

As always, there is never any obligation to use any partnership code on my site. Any codes that exist on my site are always elective.

Thanks for your readership and drop me a question in the comments section. The team from LegalWills is also ready to provide their subject matter expertise and answer questions. 

Mark

Disclosure: My Own Advisor was not compensated for this post. Should you need support for any estate planning, consider seeking the guidance of a lawyer. This is not professional advice. All information above was shared for awareness and educational purposes.

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

14 Responses to "What is a Power of Attorney and why does that matter?"

  1. I don’t know about elsewhere but in Alberta an Enduring Power Of Attorney can take effect immediately. Diminished capacity is not a requirement. My mother had no interest in her financial affairs so she signed the POA last year while she was competent so I could take over. BMO, Tangerine, CPP, OAS & Revenue Canada were all easy to deal with. One thing you don’t realize up-front is you’re going to need a dozen certified copies of the POA signed by the lawyer or a Notary so you might as well get the original lawyer to do it. Everyone wants a copy mailed to them.

    As the POA I successfully sold my mother’s house during COVID (Purple Bricks is amazing) but investing the money was far more difficult. I found that taking over someone’s finances as a POA is one thing but opening a brokerage account is another. BMO Investorline said I either had to prove my mother’s incapacity or she would have to go to a BMO branch to create the account because they didn’t recognize a POA without diminished capacity. So I opened a Questrade account. It took about 6 weeks to review the application but that’s where the funds from the house sale went.

    Reply
  2. As a follow up article I would love to see more information on how to proceed once you have a POA document as the grantee or attorney. Who do you need to contact? Banks, Credit Cards, Service Canada, Revenue Canada etc. What information do you need to provide to prove your identity? The reminder to set this up ahead of time is critical as it seems this process can take a while and every agency has their own process. I’m feeling overwhelmed with the lack of information on how to do this job as POA. If anyone has a booklet, website they can direct me to I’d be grateful.

    Reply
    1. Information on the Ontario POA forms and FAQ is at: https://www.attorneygeneral.jus.gov.on.ca/english/family/pgt/poakit.php

      The above gives you a starting point to create the POA but since every organization has different processes, you are on your own to contact each organization individually to determine their processes. It is a long process as I recently found out.

      Each individual financial organization must be done separately. You can go to Service Canada and have the POA filed for CPP and OAS. They are able to forward the POA to Veteran Affairs but they did not seem to have any access to the Veteran Affairs system when I revisited several times to check on status. CRA must be done separately. The process to get the POA accessible on line so that call center agents/local Service Canada staff can use it – is ridiculously slow – even when dropping the documents off at the Service Canada office and using internal mail.

      Until the POA is logged online by a centralized organization, call centre agents or local Service Canada staff cannot acknowledge your POA — even if you are standing there with it in hand with appropriate ID. It took more than 2 months to get the POA online for CPP and OAS so I could do something as simple as change the mailing address for correspondence via either the call center or local Service Canada staff. Probably closer to 3 months since I gave up logging my attempts to get this done after 4 visits to Service Canada. Veteran Affairs was the most responsive and most organized and provided a response within 4 weeks when the POA was registered with them.

      I made the mistake of thinking that I have the POA completed according to the Ontario guidelines on Ontario forms and it will be ready to go as soon as I needed it.

      So start interacting with the relevant organizations before you actually need to use the POA.

      Reply
    2. I think this question, and Steve’s reply have reminded me of the importance of having an inventory of assets. Steve is right – If you know that you are going to be working with your local branch of RBC, then check with them to see what additional documentation they will need. But this is just one financial institution. Supposing you want to cash out a Questrade account… sell a car… renegotiate a mortgage… pay care home fees, cancel a cable subscription. The list is endless. If you have written a Will, or a Power of Attorney, then please, somewhere, make an inventory of your assets. I don’t want this to be a plug for the services at LegalWills.ca but we include a service called MyLifeLocker that allows you to do exactly this. It is a critical part of your estate plan. Once you have an idea of the number of different entities your Executor or PoA will be dealing with, you can start to arrange the appropriate documentation.

      Reply
    3. Thanks Kat.

      I think that should be the sequel – a long checklist of sorts that folks can go through. I know the list could be endless based on personal circumstances but your comment has prompted some great, new ideas 🙂

      Appreciated and added to my to-do list with LegalWills – it will be free of course!

      Happy Holidays,
      Mark

      Reply
  3. Suggestion.

    I think that there could be some confusion in the words used in this article. While I am not a lawyer I have learned that using the correct words is very important.

    The term “Power of Attorney for Property” should be used for all property matters including financial. It is not a “Financial Power of Attorney”.

    The term “Power of Attorney for Personal Care” should be used and not “Living Will”. One can also have an “Advanced Directive” which gives direction to the Power of Attorney for Personal Care. Some people consider a “Living Will” and an “Advanced Directive” to be the same thing

    Reply
    1. Hi Tom, at LegalWills.ca we use the generic term “Living Will” because believe it or not, it’s the most commonly searched for term for this type of document. But as we explain in this article, this is a colloquial term and it also goes by medical (healthcare) PoA or Representation Agreement, and other names depending on your Province. Every Province uses different names for these documents (a problem in itself), but the article is trying to make a distinction between a PoA that deals with financial affairs and a PoA that deals with medical decisions. When you prepare the document in your Province, yes, you have to make sure that the correct terms are used.

      Reply
  4. I used all the appropriate forms for Ontario and followed the POA process to the letter for both my mother and my uncle. I had no issues using my mother’s POA on behalf of my mother with both of her banking institutions. However, I did not realize that some banks expected you to complete the POA in their office/branch. When I tried even a very minor transaction on behalf of my Uncle with his Banking Institution – provided original POA + ID, I was told they do not recognize an external POA. They expected me to drag my uncle into the branch and get a POA signed in their office. I escalated at the branch and got no where. Since my uncle is now not very mobile, this would be a very difficult process to take him into the bank. I don’t know if this was a Branch Policy or a Bank Policy – but it is a good idea to confirm with your family member’s financial institutions ahead of time to ensure the POA is acceptable and in some cases the bank will put it on file ahead of time.

    Reply
    1. Hi Steve, this is such an important comment. We have found inconsistent policies depending on the bank, the branch, and even who you speak to within the branch. It can also depend on your relationship with the branch, and the amount of money involved. You are absolutely right, if in doubt, ask the bank ahead of time, hopefully get a letter in writing confirming their policy, so that there’s no inconsistency when the document comes into effect.

      Reply
  5. My dad suffered from Parkinson’s the last ten years of his life. He remained mentally sound but his ability to speak or write became highly impaired and we had to make many decisions for him. Having power of attorney when he was still able to communicate well was critical in allowing us to ease his final difficult years. Good of you, Mark, to share this with your readers.

    Reply
    1. That is a great reminder and comment Steve – I have nothing to add. I’m sorry you had to endure those difficult years but it also sounds smart the right tools were in place.

      Take good care and thanks for sharing.
      Mark

      Reply

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