There may come a time when you do not have the mental or physical capabilities to make financial decisions for yourself. Although this can be a depressing thought, it is an issue that must be addressed so you can make preparations if that day comes. Planning for this situation will give you peace of mind knowing that a competent person of your choosing will manage your affairs. Additionally, it allows you to provide clear instructions to that individual on your financial wishes.
The most popular method of appointing a person to make decisions on your behalf is a power of attorney. A power of attorney does not refer to the individual himself or herself, but rather to the legal authority contained in a document that confers the power to make decisions regarding your financial affairs to another. It is important to note that this power does not include the ability to make health or medical decisions for you. The person conferring the power is called the "donor", while the person receiving the power is called the "attorney" (though they do not have to be an actual attorney to act in this role). Even though you are giving someone power of attorney, you still have the right to manage your own legal affairs.
Many individuals choose to appoint a family member or close friend to act as power of attorney. An attorney must be at least 18 years of age and mentally competent to handle another person's affairs. The person you appoint as attorney can refuse to accept the appointment. However, once they accept, they are legally obligated to act on your behalf. Donors are required to be over the age of 18 and have the mental capability of understanding the consequences of creating a power of attorney. It is important to appoint a power of attorney early, before your mental capabilities decline. If you wait too long, you may be deemed incompetent for the purposes of appointing a power of attorney.
The document appointing a power of attorney must be in writing and signed by the donor. The attorney is not required to sign the document. Usually, a witness also signs the document. However, the witness should not be the donor's spouse or common-law partner. The attorney is bound by the instructions contained in the power of attorney document and must always act for the donor's benefit. It is important that the attorney keep detailed records of all actions made while carrying out their duties, as the attorney will likely be required to provide accountings.
There are two broad types of power of attorney: specific and general. Specific power of attorney grants the attorney the authority to complete a specific task on the donor's behalf, such as selling your house or leasing your rental property. However, the attorney is limited to that specified task only. The power of attorney is concluded when the specific task has been completed or when the donor has become mentally incapable. General power of attorney gives the attorney authority over all of the donor's financial and business affairs. This type of power also ends when the donor becomes mentally incapable.
There are different types of power of attorney which can be customized to suit your needs.
An Enduring Power of Attorney (EPA) allows the attorney to continue acting in his or her role, even after the donor is mentally incapable. As such, it makes sense that an EPA must be granted when the donor is mentally capable. An EPA document must explicitly state that the attorney's authority continues after the donor becomes mentally incapable. The donor may revoke the EPA at any time, as long as they are competent. The document must be witnessed by a judge, notary public, justice of the peace, magistrate, licensed physician, doctor, lawyer, or police officer. When witnessing the document, the witness must swear an oath that they observed the donor sign the document and that the donor appeared mentally capable at that time. If an EPA attorney wishes to terminate their role as attorney, they must gain permission from the Court of Queen's Bench. The document must also contain the name of the person to whom the attorney must account regularly. This ensures accountability over the attorney's actions.
One type of EPA is a springing power of attorney, which comes into effect at a designated time in the future. The attorney does not gain authority until the springing event has occurred. For example, the springing event could be a doctor's determination that the donor has become mentally incapable.
If a friend or family member believes that the attorney is not acting in the donor's best interest, they may demand an accounting from the attorney or they may request that The Public Trust be appointed as your committee to investigate the situation. Also, the donor may revoke the power of attorney at any time, if they are mentally competent at that moment.
It is advisable to contact an attorney to assist you with drafting the power of attorney document, along with developing a comprehensive estate plan. A power of attorney will let you rest easy knowing that your financial affairs will be handled by someone you trust. As with all estate planning documents, it is better to get an early start, as you never know when you will need them.