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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.
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.
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.
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.
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.
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.
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:
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:
Understanding the role of the Power of Attorney is essential to determining the situations where it is necessary to get these documents in force.
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.
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:
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.
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There are several advantages to having a Power of Attorney in effect, among which are:
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:
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.
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:
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.
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.
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