The power of appointment: Who will speak for you?

To not have a voice, to not have a say can be the most helpless feeling of all. Everyone needs to appoint someone to speak for them in case they become mentally incapable and cannot make decisions for themselves. Mental incapacity can occur at any age and often the consequences are worst for young adults with young families. Everyone also needs to appoint someone to speak for him or her when they die.

Appointments for at least three different roles are necessary for everyone: to make health care and personal care decisions if mental incapacity occurs, to make financial and legal decisions if mental incapacity occurs, and to administer the estate (make service and disposition arrangements, wind up financial and legal matters, and carry out distribution wishes) upon death. If there is a possibility that children will be minors upon the death of a parent, it is also necessary for the parent to appoint someone to look after those children during their minority.

Appointees are referred to by various designations in Canada and, with the exception of wills, are appointed by documents called by various names. For example, British Columbia uses a Representation Agreement to appoint a Representative to make both health care and personal care decisions if mental incapacity occurs. Saskatchewan uses a Health Care Directive to appoint a Proxy to make only health care decisions if mental incapacity occurs while Quebec uses a Mandate in Anticipation of Incapacity to appoint a Mandatary to make both financial and legal decisions if mental incapacity occurs. Wills in Ontario appoint an executor to administer the estate upon death, while Wills wills in Quebec appoint a Liquidator. Wills in most provinces appoint a guardian to look after minor children upon death.

As much as possible, an appointee should embody integrity, good judgement, patience, be accessible and should have the time necessary to properly perform the role. Financial knowledge is also desirable for most roles, although likely not essential because the appointee usually has the right to obtain professional assistance in order to make an informed decision. In all circumstances, it is essential for the appointer to ensure that the appointee is willing to act in the event of the appointer’s mental incapacity or death.

It often makes sense to have different appointees for different roles. A great guardian, for example, may not do so well at being knowledable in the area of estate administration and so a different appointment should be made.

It also may make sense to make co-appointments for a role, such as two appointees to work together to administer an estate. In all situations it is best to make additional (alternate) appointments for a role, contingent upon the unwillingness or inability of an original appointee to act. Then there will never be a vacancy if an appointee moves to a distant geographical location and no longer wants to act, or becomes mentally incapable or dies and is unable to act.

In some provinces, appointees for financial and legal decisions during mental incapacity are entitled to compensation, while in most provinces, appointees for estate administration are entitled to compensation. However, in virtually all situations, it is best to specify in the relevant document whether the appointee is entitled to compensation and, if so, how that compensation will be calculated.

The person appointed as guardian for minor children should share the values of the parent, particularly as those values impact upon the raising of children. The guardian should also, whenever possible, be someone who the children like and respect. It is usually unwise to appoint a spousal couple as guardians because, if their marriage should break down after the death of the parent, then a court will have to determine which guardian will receive custody and guardianship of the orphaned children during their minority.

It is advisable for the parent to prepare a guide for the guardian, setting out a list of priorities and the decisions that the parent would make in specific situations. Compensation for a guardian may include a trust fund to provide money to renovate the guardian’s home to accommodate the orphaned children, or the right to live in the parent’s home with the orphaned children, perhaps even while those children are young adults and furthering their education.

It is also advisable to include in the relevant document what types of health care (including medical treatment) and personal care are desired, as well as those that are forbidden. Medical professionals should be involved in the preparation of the document because very few lawyers have any medical training and the drafting of health care directions should not be left solely to them.

Advisors often receive questions from their clients respecting who should be considered for appointment. There are usually six categories to choose from: spouses, other family members, friends, business associates, professionals, or trust companies.

Spouses

Spouses are often appointed, and usually make good appointees. They are almost always aware of the health and personal situation of the appointer, and are usually aware of the financial and legal situation. In addition, spouses are almost always to benefit from the assets of the appointer, both during mental incapacity and upon death and, as a result, will usually administer those assets well and will not seek compensation.

Other Family Members

Where there is no spouse, or where a spouse is unwilling or unable to act, adult children are often appointed and, as long as they are financially mature, usually make good appointees. With the exception of spouses, adult children are usually the ones most aware of the financial, legal, health, and personal situation of the appointer. In addition, where the appointer’s spouse is mentally incapable and is to benefit from the assets of the appointer, adult children are usually the ones best able to administer the assets in favour of the incapable spouse. Like spouses, adult children are almost always to benefit from the assets of the appointer (if not immediately, then upon the death of the appointer and his or her spouse) and, as a result, will usually administer those assets well and will not seek compensation.

If the appointer’s children are minors, then parents or siblings are often appointed, and often for all positions: to make health care and personal care decisions if mental incapacity occurs, to make financial and legal decisions if mental incapacity occurs, to administer the estate upon death, and to look after the minor children. These appointments can work well, but in many situations are not wise.

It can be unfair to parents, particularly if elderly, to expect them to be sole providers of care for their grandchildren or to administer their child’s assets during that child’s mental incapacity or upon that child’s death. However, parents will usually act to the best of their abilities if appointed, and will usually not seek compensation.

It can also be unfair to siblings to expect them to act, particularly if geographically distant or fully involved with the care of their own family. Far worse, siblings will likely have very busy lives and will not have the time necessary for proper administration of the appointer’s financial, legal, health or personal matters or estate. In addition, because it is unlikely that they are to benefit from the appointer’s assets, siblings will often seek compensation for the time spent looking after the appointer and his/her affairs.

Friends, Business Associates, Professionals

Friends, business associates and professionals may feel honoured to receive an appointment , but in most situations it is not advisable to appoint them and, in any event, they may not be willing to undertake the tremendous responsibility that an appointment entails. In particular, they are unlikely to want to be responsible for making health care or personal care decisions, which can make the appointment of someone to make those decisions extremely difficult if there is no spouse or other family member to rely upon.

Although friends may be willing to be responsible for making financial and legal decisions if mental incapacity occurs, or for administering an estate upon death, they likely have no particular expertise in financial matters or estate administration. In spite of that, they will likely want to be compensated for their time. Like siblings, friends likely have very busy lives and will not have the time necessary for proper administration of the appointer’s financial or legal matters, or estate. In some situations, it may be appropriate to appoint friends to look after minor children.

It is unlikely that business associates or professionals will want to be responsible for making financial and legal decisions if mental incapacity occurs, let alone be responsible for making health care or personal care decisions or looking after minor children. However, many professionals will be very willing to undertake estate administration, and usually for a hefty fee. The problem is that, with the exception of estate lawyers, professionals have little if any estate administration experience. In addition, they have busy practices, and the administration of an estate will suffer if the professional is busy with other matters and does not give the estate priority when required.

However, friends, business associates, and professionals can often be advantageously appointed to act together with a spouse or other family member. For example, a friend may be able to help a young adult child deal with health care, personal care, financial and legal decisions respecting a mental incapable parent, or administer the estate upon the death of a parent. A business associate may be able to help a spouse operate the private business of his or her deceased spouse, while a professional may be able to help that surviving spouse with the financial and legal matters respecting that business.

Trust Companies

In situations where a spouse or other family member is not available for appointment, a trust company may be the best alternative. However, trust companies are unable to act as health care or personal care decision makers, or as guardians of minor children.

Trust company employees are experienced in financial matters and estate administration. Unlike siblings, friends, business associates and professionals, they can give the appointer’s affairs the necessary attention. Like most siblings, friends, business associates and professionals, a trust company will require compensation , but in most situations that compensation is less than what the others will seek. In addition, in some situations the trust company may agree to negotiate a fee which is less than its standard compensation.

In many situations, even where a spouse or other family member is available for appointment, a trust company may be useful, either as the sole appointee, an alternate appointee, or, most likely, a co-appointee. A trust company as co-appointee can relieve the spouse or other family member from dealing with administrative tasks, litigation which may arise, or constant demands for money from those who are to benefit from the appointer’s assets (particularly beneficiaries of long-term trusts). And where a long-term trust forms part of the appointer’s estate plan, a trust company can be appointed as an alternate trustee, or continue if appointed as a co-trustee, to act after the personal trustees have died.

It is essential that the choice of appointee(s) be given as much weight as decisions respecting how an appointer’s assets will be used if he/she becomes mentally incapable and how those assets will be distributed upon death. Each situation is different, depending upon the appointer’s situation, the appointment which is under consideration, and the available potential appointees.

Floyd Gradley is AVP, Mackenzie Investments Tax and Estate Planning Team, and an estate and trust lawyer.