Understand PoA requirements

Wills have a way of forcing people to confront fundamental questions, such as family dynamics and conflicts, personal and business relationships, and their own mortality.

In this context powers of attorney are often dealt with quickly at the end of the planning meeting, like that quick cup of coffee at the end of a business lunch before you hurry back to the office.

But the issues that can pose problems in the estate plan (e.g., intra-family conflict, the family cottage, a beneficiary with special needs, the operation of the family business, etc.) are often the same issues that affect clients now, so effectively using powers of attorney is very important.

For example, a business owner may want to appoint an attorney who understands the business to deal with business property, but appoint a different attorney to manage personal property. A client with a disability will likely need an attorney familiar with his or her particular needs.

Create a power of attorney

The best planning will be undone if a power of attorney is invalid, so it’s necessary to understand the requirements.

The Ontario Substitute Decisions Act (SDA) provides for two main types of power of attorney. The first is for property. It authorizes a person to deal with the property of the grantor (the person giving the power of attorney). The attorney cannot, however, make a will for the grantor.

If the attorney for property’s authority is stated to continue after the grantor becomes mentally incompetent, it is a “continuing power of attorney.”

The second type is for personal care, which permits the attorney to make personal care decisions for the grantor (consent to health care treatment, admission to care facilities, shelter, clothing, hygiene, safety, and nutrition).

In both cases the grantor can give the attorney either a broad or expressly limited authority.

Grantor requirements

The grantor of the power must be at least 16 years old in the case of personal care, and at least 18 in the case of property. Although the grantor must have the requisite mental capacity in both cases, the test for capacity is not the same.

For personal care, the grantor must understand whether the proposed attorney has a genuine concern for his welfare, and must appreciate that person may need to make personal care decisions for him. To make a power of attorney for property, the grantor must know the nature and value of her property and obligations to dependants. She must also understand the scope of the attorney’s powers, that the attorney’s powers can be misused, and that the value of her property may decline if it is not prudently invested.

The grantor must also know that she can revoke the power of attorney (if she is capable at the time) and that the attorney is accountable to her regarding the management of her property.

Attorney requirements

An attorney, like the grantor, must be at least 16 years of age in the case of personal care, and 18 in the case of property.

A person who provides health care and related services to a grantor for compensation cannot act as the attorney for personal care unless the person is the grantor’s spouse, partner or relative.

The attorneys must be mentally competent, although that term is not defined in the SDA in the case of attorneys. Some jurisdictions require attorneys to formally accept their appointment by signing on to the power of attorney, but this is not required in Ontario.

Formal requirements

Both types of powers of attorney must be in writing and signed before two witnesses. The witnesses must both be present at the same time and they must sign the document. The SDA prohibits certain people from acting as a witness: the attorney, the attorney’s spouse or partner, the grantor’s spouse or partner, the grantor’s children, a person who has a legal guardian of property or of the person, and anyone who is less than 18 years of age. Witnesses must be mentally competent but, as with attorneys, capacity for witnesses is not defined in the SDA.

To revoke or not?

Even where the requirements for a valid power of attorney are otherwise met, inadvertent revocation can lead to costly outcomes.

Consider the example of John, who has an existing power of attorney for property appointing his three children.

The power of attorney covers all of his property and gives his attorney the widest possible authority.

John decides he wants his daughter, Martha, to have sole decision-making authority over his shares in the family business because she works in the business and understands it better than her brothers. John executes a new power of attorney that is limited to the shares, but the revocation clause in the new power of attorney revokes all prior powers of attorney.

John subsequently becomes incapable. The problem for John’s children is that the limited power of attorney contains a general revocation clause that revokes the prior general power of attorney. So, except for Martha in respect of the shares, nobody has decision-making authority over John’s property.

Since John is incapable of making a new power of attorney, the children must now apply for guardianship, which is both costly and time-consuming.

The good news is the SDA permits multiple powers of attorney to co-exist, but this must be clearly stated beforehand. To avoid a situation like the one John and his children found themselves in, it’s important to review with clients whether there is a pre-existing power of attorney that should not be revoked (e.g., a bank power of attorney).

If so, the new power of attorney must state the intention that there be multiple powers of attorney, the revocation clause should be limited accordingly, and scope of the attorney’s authority under the new power of attorney should be clearly defined.

Darren Lund is an associate in the Toronto office of Borden Ladner Gervais LLP, whose practice is focused on estate planning and administration. Darren can be reached at 416.367.6358 or dlund@blg.com.