Personal Finance

Don't leave your fate in government hands.
By Deanne Gage | 30/01/13

Think about estate planning, and wills immediately come to mind. But drafting powers of attorney are equally important. In the event we become incapacitated, these documents allow a person of our choosing to make major decisions on our behalf. "Without powers of attorney, it puts your family in a difficult position because no one has the authority to file your taxes, sell your cottage or make medical decisions," says John Poyser, a lawyer with Tradition Law LLP Estates and Trusts based in Winnipeg.

About the Author
Deanne Gage is a Toronto-based writer who has specialized in personal-finance issues since 1999. A recipient of several journalism awards, including one from the Investment Funds Institute of Canada, she is also a former editor of Advisor's Edge and Advisor.ca. She can be reached at deannegage@gmail.com.

You'll need two different powers of attorney.

A continuing power of attorney for property is for all your assets. Many people believe they already have this document through their bank. But these types of powers of attorney only cover the specific accounts you hold at that particular financial institution, notes Barry Fish, a senior partner with Fish & Associates in Thornhill, Ont. "Although they are signed with the same formalities, [a bank power of attorney] is not going to be effective outside of its jurisdiction," he says. Meanwhile, assets like your home, boat and non-bank investments are left vulnerable.

A personal-care power of attorney is about your medical wellbeing. Do you want your life prolonged if there is no reasonable hope of recovery? What sort of grooming, food or dress would you expect if you are mentally incapable?

Ultimately, lack of these documents will also lead to either a family member stepping forward and seeking appointment by the courts or, if no one steps forward, a government representative filling the void. In any case, "it may or may not be someone you would want in charge," says Poyser. "The first person who steps forward may get the job and that might not be the person you'd pick."

And the fact is there's a difference in what a child would do for her mother compared to what the government might do, notes Fish. He cites grooming as an example. "What would a public administrator consider a viable expense? How often does mom get her hair done? Once a week? Once a month? Once every three months?"

So, who should be appointed power of attorney if you're unable to make decisions for yourself? Spouses, children or siblings are the most popular choices, according to Fish. Parents of several children sometimes struggle over which child to appoint. "The parent has to understand they can't do politics to make the kids feel better," says Fish. "Go with the kid who will do the job properly." That means your alcoholic daughter or money-clueless son should be off the table.

A majority-clause power of attorney can be an option for parents with, say, three children who would all do a competent job. "In that case, a vote of two out of three [makes the decision]," says Fish.

Poyser advises caution with these types of powers of attorney. "If you appoint more than one person, it can create far more work and inconvenience for everyone," he says.

Poyser also recommends choosing an alternative power of attorney in case your first choice is unable to fulfill the role.

Whoever you appoint, Fish says, needs to be someone you trust implicitly and who will not use the document before it's actually necessary. That's because you can make a power of attorney effective immediately upon possession of the document. Alternatively, you can restrict your power of attorney by adding a clause that makes the document dormant until you are deemed mentally incapable. But Fish believes adding a clause makes things complicated since you are then leaving things up to outside sources.

Take this example. Let's say your father has experienced memory loss for a year and hasn't been diligent at updating his investment portfolio. You as power of attorney want to intervene and sell a falling stock. You go to your father's doctor for a letter about his condition and present it, along with your restricted power of attorney, to the financial institution.

"The financial institution says, 'This isn't evidence of mental incapacity, it's just short-term memory loss,'" explains Fish. "Meanwhile the stock is falling rapidly. If you're in that situation, you are absolutely helpless to help your loved one. That's why when you craft your power of attorney you have to be cognizant of what it means to restrict it. Precaution for the sake of precaution moves you from a position of comfort to almost an assurance of discomfort."

Another way people restrict the power of attorney is listing specific assets but excluding others. "If you don't keep the power of attorney general and if there's incapacity, it can create a similar situation to if there's no power of attorney, which means the [government] will step in," he says.

Both Fish and Poyser recommend working on powers of attorney simultaneously with your wills. Powers of attorney cost usually between $150 and $500, depending on the lawyer and complexity of the documents.

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