Power of Attorney: understanding the implications
By ATB Financial 30 October 2018 4 min read
Many Canadians worry about what would happen if they became unable to deal with their own money, property, or finances. How would your bills get paid? Who would help manage your finances? Powers of Attorney are often used to plan ahead for a time when you may need help managing your affairs.
This article offers some basic information, but it is not to be taken as legal advice.
What is a Power of Attorney?
A Power of Attorney (POA) is a legal document that gives one or more persons the authority to manage your money and property on your behalf. The person you appoint is called an “attorney”, but that person doesn’t need to be a lawyer.
Among other requirements, you must be mentally capable (able to understand financial and legal decisions, as well as their consequences) at the time you sign any type of Power of Attorney for it to be valid. The legal definition of mental capacity may be different in each province or territory.
What types of Powers of Attorney are used in Canada?
There are two types of Power of Attorney (POA) commonly used for finances and property in Canada:
- A General Power of Attorney is a legal document that gives your attorney authority over all or some of your finances and property. It allows your attorney to manage your finances and property on your behalf only while you are still mentally capable. It ends if you cancel it, become mentally incapable of handling your own affairs, or when you die. A General Power of Attorney can be ‘specific’ or ‘limited’, which can give authority to your attorney for a limited task (e.g. sell a house) or for only a specific period of time. The Power of Attorney can start as soon as you sign it, or on a specific date listed in the document. To put a limited Power of Attorney in place you should visit a lawyer.
- An Enduring Power of Attorney is a legal document that can grant your attorney the same authority as a General Power of Attorney, but unlike a General POA it will start or continue when you become mentally incapable. Special legal wording is required to meet the legislation requirements to allow a power of attorney to be enduring, typically requiring the expertise of a lawyer.
What can my attorney do?
Unless you limit your attorney’s authority, he or she can do almost everything with your finances and property that you could do. If you don’t set any limitations in your Power of Attorney document, your attorney can do your banking, sign cheques, buy or sell real estate in your name, and buy consumer goods. Your attorney doesn’t become the owner of any of your money or property, but has the authority to manage it on your behalf.
Your attorney cannot do any of the following:
- Make a will for you.
- Change your existing will.
- Change a beneficiary on a life insurance plan.
- Give a new Power of Attorney to someone else on your behalf.
Can I still make decisions for myself if I grant someone a Power of Attorney?
As long as you are mentally capable, you can continue to make your own decisions about your finances.
What are some of the potential risks of having a Power of Attorney?
- Your money and/or property could be mismanaged if the attorney you choose is not trustworthy, uses their power improperly, or doesn’t make decisions in your best interest.
- Not enough information or limitations in the document could lead to your finances being managed in a way you do not agree with.
- Too many specifications may limit your attorney’s ability to act effectively on your behalf.
- If you appoint more than one attorney to act jointly, disagreements between them could cause problems and lead to delays.
- If not reviewed regularly, your Power of Attorney document might not meet your current needs or the requirements of the law. The person you previously selected to be your attorney may no longer be the best choice or may no longer be available.
- The problem of ‘competing’ Powers of Attorney arises when someone has signed more than one Power of Attorney document. If you appoint a new attorney, you may need to cancel your previous Power of Attorney document and advise your financial institution of the change.
What is a Trading Authority (TA)?
A Trading Authority (TA) is different than a POA in that it gives an individual authority over the account(s) identified, only to execute trades on the account. This individual is not permitted to direct the movement of money or funds into or out of the account.
Also a TA cannot submit material changes on behalf of the account holder. You can request a TA to be set up on your investment account(s) with the help of your financial advisor.
What can I do if I feel like my money or property is being mismanaged or if someone is pressuring me to sign something?
Financial abuse is one of the most frequently identified types of elder abuse in Canada, but it can happen to anyone regardless of age. You should immediately talk to people you trust to make sure your best interests are being met. You may need to contact the police to ensure you get the help you need.
It’s important to take the time to learn how you or others can monitor your attorney’s actions, and what to do if you want to change or cancel the Power of Attorney. Be sure that you fully understand any document before you sign it.
Each province and territory has its own laws relating to Powers of Attorney. In Alberta, you can learn more by reviewing the Powers of Attorney Act or speaking to a lawyer.