The Importance of Powers of Attorney

May 24, 2017

In my last several entries, I’ve discussed the importance of having a Will, reviewing your Will regularly, and hiring a lawyer to assist you.  A Will, however, is only one important piece of the estate planning puzzle.  Another important piece of that puzzle are powers of attorney.

Clients are often confused about powers of attorney and the authority they create.  There are a few basic principles to keep in mind:

  1. A Will only applies after someone has died.  This means that the executor a client names in his or her Will has no authority until the client’s death. 
  2. Continuing Powers of Attorney for Property (as they are known in Ontario) are documents in which a client appoints someone else to make financial decisions for him or her during his or her lifetime.  Powers of Attorney for Personal Care are documents in which a client appoints someone else to make medical discussions during his or her lifetime.  The attorney’s authority to make decisions expires when the client dies (at which point the executor named in the Will takes over). 
  3. In Ontario, the term “attorney” in this context does not refer to the client’s lawyer (unless of course the client named his or her lawyer as attorney).  Rather, it refers to the person a client names in his or her power of attorney document to make decisions on his or her behalf. The term “grantor” refers to the person who signed the powers of attorney.
  4. Continuing Powers of Attorney for Property and Powers of Attorney for Personal Care are separate documents.  A client can name different people to each role.

On some level, most clients understand that it’s important to have powers of attorney in place to ensure that there is no confusion or gaps in decision-making in the event of an accident or illness.  Nevertheless, some clients remain hesitant to sign documents.  When I meet with such a client, I explain the serious implications of not having powers of attorney.

It is generally not expensive for a lawyer to prepare powers of attorney.  In most cases, they are standard form documents, and are included as part of the package when a client retains a lawyer to prepare a Will.  Meanwhile, should a person resident in Ontario become incapable without having powers of attorney in place, it is necessary (at least for financial decisions) for someone to go to court to have the person declared incapable, and to have someone appointed to be the incapable person’s “guardian of property” (and perhaps guardian of the person).  Relative to simply signing powers of attorney, the guardianship application to Court is problematic for two main reasons:

  1. The incapable person has not had any say in deciding who will be his or her attorney and make decisions for him or her.
  2. The Court process can be time consuming and expensive: Even in a clear-cut situation of incapacity, getting a Court appointment can take several months and cost several thousand dollars given the volume of necessary paperwork and technical steps.

One reason clients may be hesitant to sign a continuing power of attorney for property is the broad authority that the document gives the attorney. The concern is that the attorney will gain access to the document while the client is capable and then assume control over the client’s finances.  This is a legitimate concern: My standard continuing power of attorney for property document is active as soon as it is signed by the client. 

Different lawyers have different practices to address the access concern.  In my office, we ensure that the client signs only one copy of the continuing power of attorney for property document.  We keep that copy locked in our firm vault with a “Direction” signed by the client attached to it.  The Direction confirms that my firm will only release the continuing power of attorney for property document to the attorney in the event that the client authorizes us to do so, or in the event that we become satisfied that the client is no longer capable of managing his or her affairs (as between spouses, we usually relax the latter requirement, and the client confirms that we can release the continuing power of attorney for property upon the instruction of the spouse).  This helps avoid unauthorized access.  It also helps avoid difficulties for the attorney with financial institutions after the document’s release has been authorized (a condition on the face of the document that the grantor be incapable could present challenges with banks requesting proof of incapacity). 

If you have any hesitation about signing powers of attorney, I suggest that you speak to a lawyer about the risks involved with not signing documents.  In the end, a lawyer will almost certainly recommend to a client that he or she have properly drafted powers of attorney in place.

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