TYPES OF POWERS OF ATTORNEY
A power of attorney is an important estate-planning tool. A Will covers you when you die, but what happens if you become mentally incapacitated during your lifetime? Who looks after your affairs for you? Could your spouse sell your house if you got Alzheimer disease?
Due to privacy laws and the simple fact that you cannot sign on behalf of another in most circumstances, a person cannot act for another person or obtain another's financial information without a power of attorney or a representation agreement. A spouse cannot sell a deceased spouse's interest in land without a registrable power of attorney or representation agreement that appoints him or her, even if they both own the property.
In British Columbia, power of attorney legislation and representation agreement legislation are both in force. Representatives under a representation agreement can have the same powers as an attorney under a power of attorney. Due to the complexity of the representation agreement legislation, most lawyers use powers of attorney. The comments here also apply to representation agreements.
The standard estate-planning tool is a general power of attorney, which allows the person appointed as the attorney to do most acts on behalf of the grantor of the power of attorney. Some things cannot be done by a power of attorney, for example, making or revoking a Will or obtaining a divorce.
The key question concerning a power of attorney is whom do you trust to perform the function of the attorney? The bottom line is if you don't trust the attorney or you have concerns about conflicts of interest, you should not appoint that person. You should be aware, though, that if you do not appoint a power of attorney, someone could apply to become the committee of your estate. A committee is essentially a court-appointed attorney. This process is time consuming and expensive. The other alternative is that the Public Trustee, a government office, takes over your affairs.
Types of Powers of Attorney
- The simplest power of attorney is one appointing another person, such as your spouse, as your attorney. If you are a senior and your spouse is alive, you should consider appointing someone else to act as your attorney in the event your spouse died or was unable to act. For example, you could appoint one or more of your children to be the alternate attorney.
- The simplest of alternate types of power of attorney is to appoint your spouse and, say, two of your children, as attorneys. The document can stipulate that any of the attorneys can act separately, or that all three of the attorneys have to act together. Obviously, if you wish a child to act if your spouse became incapacitated, you need to have each of the attorneys able to act separately. These types of powers of attorney will work if you do not believe there will be a conflict between your capable spouse and your children, and, further, if you do not believe there will be a conflict between your children in the event that your spouse is incapable of acting.
Another type of alternate power of attorney is to provide that the alternate only be able to act if the primary attorney could not or would not act, or if the primary attorney became mentally incapable. These documents are more complex because usually they will specify how the secondary attorney can prove that the primary attorney cannot or will not act or is mentally incapable. These types of powers of attorney are important if you believe that the secondary attorney is trustworthy, but you want to be sure that the secondary attorney cannot act if the primary, say your spouse, is capable of acting.
- A third type of power of attorney is called a springing power of attorney. This power of attorney only comes into effect upon your mental incapacity. The problem with these types of documents is proving that you are mentally capable or incapable. There must be a mechanism to prove you are mentally incapable, so when your attorney takes the document to the Land Title Office or a bank, the attorney can prove you are mentally incapable.
Another problem with these types of powers of attorney is that if you have a stroke and are physically incapacitated but still mentally capable, the attorney cannot act. Of course, just because you cannot speak or write your name does not mean you are mentally incapable, but practical difficulties can arise under these circumstances. For a while, the springing type of power of attorney was considered illegal in British Columbia, but a recent Court of Appeal decision has allowed them.
Just as with the contents of your Will, you and your legal advisor need to seriously discuss the appointment of an attorney. Your advisor should know your assets so that any particular problems in dealing with those assets can be considered. Family relations also need to be considered so that a practical scheme can be put in place. This depends upon your needs and the personalities and abilities of your family; in some circumstances the appointment of a trust company, lawyer, or other trusted third party should be considered.
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