The Importance of an Enduring Power of Attorney

Estate planning can be overwhelming for some people, largely because of the sheer number of options available and the vast array of online information. Options for Power of Attorney are no exception, with each of them offering different benefits for estate planning.

Under the umbrella of ‘Power of Attorney’ (aka ‘PoA‘), there are three main types that can be granted:

1. a Limited Power of Attorney (one that is limited to a specific time period or specific purpose),
2. a Power of Attorney that is not enduring (one that will not be valid if there is an incapacity event), and
3. an Enduring Power of Attorney (one that is valid in the event of incapacity).

For many families with older loved ones—or those facing a higher risk of cognitive decline, such as dementia or Alzheimer’s—an Enduring Power of Attorney is the gold standard.

Below are 3 important things to keep in mind about an Enduring Power of Attorney.

Create an Enduring Power of Attorney

This may seem an overly simplistic reminder, but you might be surprised how often it’s forgotten. If the PoA document does not have express wording that says it endures beyond incapability (the magic wording that makes it enduring) the document ceases to be operational when that event happens—for most, this makes it useless when it’s most needed.

An Enduring Power of Attorney is a signed document appointing another person to make financial and legal decisions on your behalf and continues—or endures—if you become mentally incapacitated. The requirements for an Enduring PoA are set out in BC’s Power of Attorney Act (the ‘Act’).

If you don’t have an Enduring Power of Attorney and you become incapacitated, your loved ones will have to seek a court order appointing someone as committee. This is, at its core, a court appointed manager of your affairs. Since this is a court process, unlike in the course of creating an Enduring PoA:

1. you are not in direct control of selecting who would be appointed;
2. the process can cost in the thousands of dollars;
3. it can take months to navigate the process; and
4. you will have to undergo medical evaluation (in order for two medical affidavits to be prepared), which, if your medical condition involves any form of paranoia or mistrust, can be deeply distressing both for you and your loved ones.

The solution? Plan ahead and prepare an Enduring PoA.

Keep Track of the Original

Like nearly all estate planning documents, the original document is incredibly important. This is particularly true of an Enduring Power of Attorney. A copy—even a copy that a lawyer or notary has certified to be a true copy of the original—is not valid for many purposes, including land.

If it is discovered that the original is lost only after someone is incapable, it’s a nightmare, as the person is no longer legally able to make a replacement Enduring PoA. It is only in exceptionally rare circumstance that a court would recognize a non-original document—Shaun Driver and Jimmy Burg from our litigation team can attest to this, having gone through heroic efforts to complete a property sale based on a copy of an Enduring Power of Attorney.

It’s vital to keep the Enduring Power of Attorney in a safe and secure location to limit the risks of fraud (particularly real estate fraud) and the loss or destruction of the original (such as if there’s a fire or leak at home). Best practice is to leave the original with your Wills & Estate lawyer.

Be Clear on the Details

An Enduring Power of Attorney must clearly stipulate the scope of powers being granted to the attorney. Understanding the basic powers under the Act, the limits on them, and tailoring your document to reflect how you use your assets in your life will typically create greater continuity in the management of your affairs.

Financial affairs

The starting point under the Act is that all named attorneys (the person named under the Enduring PoA, not your lawyer) have the authority to manage your ‘financial affairs’. This is much broader than handling banking, and includes managing real estate, taxes, finances, and, generally, any decision you are allowed to delegate. The catch is that there are limits in the Act that often don’t align with how people run their lives.

Gifts & Loans

Under the Act, the base principle is that your attorneys may not use their authority under a PoA to make gifts, loans, or charitable donations, or allow people to use your assets without paying market rates, unless specifically authorized to do so within the PoA document.

Consider the circumstances where you:

1. are helping an adult child financially (whether that’s paying for tuition, helping with living expenses, or helping them buy a house), or
2. you are receiving a pension or RRIF withdrawals, and you use this money not just for you, but for household expenses that you share with your spouse, or
3. your house is registered in your sole name, but your spouse or adult child lives there rent free, or
4. you have a business and you regularly work with accountants and lawyers to carry out business and tax planning such as ‘freezes’ that redirect future value and tax liability.

These would not typically be covered in the base powers of managing “financial affairs”, and wording has to be added to expressly allow these to continue if you are incapable.

Hiring Professionals

An attorney is generally empowered to retain the services of qualified professionals to assist them in carrying out their duties under the PoA. For example, an attorney can generally hire an accountant to prepare tax returns.

However, if the professional is also the person you have named as your attorney, they are not allowed to be paid for this unless you expressly state this. A common example is where you name a child as your attorney, and your child happens to be a realtor or accountant. If your child or their firm then sells the house or prepares your taxes, they don’t get paid and your document has to expressly say that this is allowed.

Health Care

It is important to note that the PoA does not extend to decisions in respect of your health care or personal care, such as whether to administer medical treatments or medication. This power has to be assigned separately using a Representation Agreement.

However, the attorney will control the purse strings necessary to fund health and personal care. It therefore becomes extremely important that the named attorney works well with the person named as the health care decision maker under the Representation Agreement.

Will

A PoA (enduring or otherwise) does not confer the power to change, destroy, or a make a Will for you. Only you can do this.

Americans

There are tax implications for you if you make a PoA and you name someone who is American as your attorney, regardless of where they live, including that there can be an obligation on your attorney to disclose your financial assets to the IRS annually. This is by way of filing a Report of Foreign Bank and Financial Accounts (aka ‘FBAR‘). The penalties for failure to file can start at $10,000/year.

For more information on various Powers of Attorney and estate planning, please contact Rose Shawlee, Catherine Kim, or Jonah Spiegelman of our estate planning group for assistance.

This information is current to February 21, 2024, and is not a substitute for legal or tax advice and should not be relied on as legal or tax advice.