Do You Need A Power Of Attorney?

While determining whether to get a Power of Attorney is common in older populations, not everyone is aware of their importance. These documents allow individuals to prepare for situations where they would no longer be able to make decisions, monetary or health-related. Should a time arise where a person is unable to determine their own care, the Power of Attorney ensures that there is a representative to see the predetermined wishes realized. 

The designated representative is charged with acting on behalf of the incapacitated person in the event that they cannot provide adequate self-care. To determine the best way to approach this essential document, it’s important to understand what it’s for and how it works. 

What Is A Power Of Attorney? 

A Power of Attorney is a legal document designating either one or several individuals as representatives of a person’s affairs. It takes effect when the subject of the POA is alive but incapacitated. This refers to a situation where, whether due to physical or mental impairment, the subject cannot make responsible decisions. Since the nature of these decisions differs based on the situation, there are multiple approaches to the effect of Powers of Attorney. In many cases, individuals will keep multiple POAs in order to cover all bases. 

Types Of Power Of Attorneys In Canada

In order to account for all possible situations, there are several types of Powers of Attorney. Depending on the circumstances of the attorney and the subject, a different document is better suited.

Healthcare Power Of Attorney

As the name suggests, this type of POA is meant to address medical decisions. These can range from determining the best course of treatment pharmaceutically to the decision on whether to continue living or not. It comes into force when it is deemed that the subject of the Power of Attorney is unable to make responsible decisions effectively. These orders can be imposed by the courts or determined by the individual in question, the latter being common in the senior population. 

Enduring Financial Power Of Attorney

Aside from medical decisions, the other choices necessary include financial decisions. These range from paying bills to making RRSP contributions. An Enduring POA also referred to as a Continuing Power of Attorney, becomes effective upon being executed and legally witnessed. The attorney is then able to continue to make decisions on the behalf of the subject should they become incapable of making financial choices.  

General Financial Power Of Attorney

Similar to an Enduring Power of Attorney, General POA refers to situations where the subject is entirely capable. These are common, given they are a necessary feature to act as a proxy in a financial setting. This document comes in force at the agreed-upon date and can be terminated after a set period of time. As with any other POA agreement, it must be signed and witnessed. If the subject of the agreement becomes unable to make financial decisions, the General POA is terminated and any officialized Enduring POA takes effect. 

What Can A Power Of Attorney Do In Canada?

Except for situations where the authority of the attorney is limited in advance, then the professional is able to make any financial or property-related decision the subject could. Among the abilities of an acting Attorney are: 

• Conducting regular banking activities
• Purchase or sell real estate on your behalf
• Make purchases of consumer goods
• Sign any necessary cheques

Though the Attorney has a great deal of authority, they are only the caretakers of those assets. At no time does the Attorney own your property, rather they have the legal ability to manage it on the behalf of the subject. There are limits to the capacity of the Attorney, including:

• Changing the beneficiaries on any life insurance
• Create or make changes to a Living Will and Testament
• Relegate the responsibility of the POA role to another professional

Understanding the role of the Power of Attorney is essential to determining the situations where it is necessary to get these documents in force. 

When Do You Need A Power Of Attorney?

Having a Power of Attorney in effect is about more than ageing, it is a matter of financial planning. Despite popular opinion, married couples do not automatically receive POA; it can be contested by family members, including children, in court. In some cases, such as a degenerative disorder, planning being unable to make decisions is unfortunately a necessary part of planning for your future. In many cases, it is not always a top consideration — but it should be. 

Losing capacity can come from unexpected circumstances — in fact, it usually does. Whether it is the result of an accident, illness, or merely time, there are many situations where Powers of Attorneys are necessary. Consider being in the hospital and unable to pay the mortgage, or being out of the country for an extended period. Any situation that precludes the individual from conducting their financial affairs warrants a Power of Attorney. 

An Enduring Power of Attorney is essential for everyone; it ensures financial continuity for the individual and their loved ones in the event of incapacitation. General Power of Attorney arrangements is specific to a certain situation. Any situation where the person is unable to meet necessary in-person financial or property-related obligations is the time for a GPOA.

Cost Of Hiring A Power Of Attorney 

The price that a Power of Attorney can charge is regulated by the jurisdiction (on the provincial or territorial scale). The general rule of thumb is that the Attorney can charge a reasonable amount for the expenses associated with being the financial proxy. This includes time and resources used in the course of performing that role. 

The regulations vary based on the location, with some requiring explicit authorization given in advance. Others offer higher rates to the POA rep, including a small percentage of money paid out of assets. Often, the Power of Attorney can charge a percentage-based portion of your assets every year. 

Consider the following example, using the guidelines set forth by the Province of Ontario: 

Value of assets at year-end: $100,000

Amount earned: $2,000

Amount withdrawn: $15,000

Percentage entitled by POA representative:

• Withdrawn assets: 3% = $3,000
• Total assets held: 0.6% = $600
• Annual earnings: 3% = $3,000

The example highlights that the amount charged by the POA representative is paid according to the amount gained by the estate or the amount used. It directly corresponds to the work done, whether that is through the payment of bills or the money generated. As for earnings based on total assets, the percentage is very small, making it more of a stipend or a retainer for the service itself. 

If you’re a senior, find out how you can defer your property taxes to save money.

Benefits Of Having A Power Of Attorney 

There are several advantages to having a Power of Attorney in effect, among which are: 

• Financial security in unstable situations: The person in charge of your POA has the fiduciary responsibility to manage your assets in the best way possible. They are also responsible for a complete annual accounting of the work done in their capacity as the attorney. The person holding POA can work in conjunction with another lawyer or financial advisor to ensure that the job is done as well as possible. 

• Choice and control prior to an incident: When a Power of Attorney is completed in advance (before it is needed), then the subject has a full say of who will be in charge of their assets. This offers the chance to control the situation in advance and allows the subject to choose someone in a good position to act as the attorney. 

• Improved money management: In business or estate situations where the proper amount of focus cannot go towards financial management, a POA is helpful. This professional can focus on your financial position while you direct your attention elsewhere. Since there is the legal obligation to both report and manage the money responsibly, it is a safe approach to handling large sums for set periods of time.  

• Ensuring safety in vulnerable situations: By employing someone you trust in the capacity of your Power of Attorney, you can protect your interest when you are unable to take care of yourself. In most cases, people opt for a spouse or trusted family member. Alternatively, you can use a business that specializes in financial services or opt for a solicitor to perform those duties. 

Drawbacks Of Having A Power Of Attorney

While there are clear-cut benefits to having a Power of Attorney in place, there are potential downsides to consider. While prudence and research can mitigate these situations, it is important to keep the following in mind: 

• Potentially dishonest attorneys: The person executing the POA has a fiduciary responsibility to act in your best interests. However, just as there are always law-breakers, there are individuals who do not carry out the role in good faith. The best way to prevent this type of situation is to choose a reputable agent with a proven track record of success. Alternatively, a trusted friend or family member can perform the role. 

• Poorly structured agreements: If the arrangement, especially with a general power of attorney, is not made correctly, it can lead to issues. Too few limitations run the risk of poor financial management and planning. Too many limitations can result in the attorney being unable to perform the tasks necessary to optimize your financial situation. 

As with any financial decision, it is essential to weigh the pros and cons. In most cases, having at least an Enduring Power of Attorney is a wise choice. However, it is important to manage the agreement prudently and choose an attorney you can trust. 

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How To Create A Power Of Attorney

Particularly since the document is so essential, the service is highly accessible. In fact, in many situations, the lion’s share of the work can be done by the individual. However, if you are not familiar with the process, it is best to get independent legal counsel to ensure you are getting the best contract possible. Follow these steps to complete your Power of Attorney:

1. Choose your Attorney: The first step is identifying the person you would choose to be your attorney. Common choices include spouses, trusted friends, and family members. Other options include lawyers and accountants that specialize in the service.
   
2. Create a Power of Attorney: Depending on the province of residence, there are different specifications for the document. There are online services available that have templates for sale, usually for around $30. However, if the situation is anything other than straightforward, it is best to get legal counsel.
   
3. Identify witnesses to complete the document: Two adults must be present to sign the Power of Attorney. In some situations, it can be anyone with valid government identification and who can attest to witnessing the signing process. In other provinces, it is necessary to have a certified professional sign the document.
   
4. Sign and have the document notarized: Most provinces require a notarized agreement, especially to provide to a financial institution. Notaries verify the identities of all parties to the agreement and ensure that it is not executed with any coercion or duress. 

Be sure to review the document regularly to account for any changes in circumstance, with either yourself or the representative. Ensure that the attorney appointed is able to access the document should it become necessary. 

Final Notes 

Powers of Attorney are essential documents in any kind of financial planning. Regardless of whether it is planned, situations can arise where you are unable to take care of your financial wellbeing. Relative to the risks of going without a POA, the cost of getting one seems like a very small investment. Provided you do your research on the rules governing the rules, the benefits of this document are significant. Whether as a matter of retirement or estate planning, having one of these documents in force is an important step in curating a healthy financial landscape.