Powers of Attorney: How far can you go with Estate Planning?

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Many of us consider a Power of Attorney (the “POA” document essential to the estate plan. The document is utilized while the donor (or “grantor”) of the power is alive and usually incapacitated. The POA is distinguishable from a Will, which takes effect on death. The question often arises as to what extent a person named in a POA (the “attorney”) can engage in estate planning on behalf of the donor of the power.

 

What is the purpose of the POA for property?

 

A POE for the property is a document whereby the donor provides the authority to the attorney to  manage and govern property and financial affairs usually when the individual becomes incapacitated. In British Columbia, a representation agreement provides broader powers and includes health care directives, personal directions as well as financial decision-making.

 

All provinces except for Quebec,now allow the POA to become effective immediately on the date signed and continue the incapacity of the donor. British Columbia differs somewhat in that there are two kinds of power of attorney documents both dealing with financial decisions. A general power of attorney terminates where a person becomes incapacitated while an enduring power of attorney document continues to take effect even if the adult is incapable.

 

A power of attorney document may state that it is only to become effective when the grantor becomes incapable of managing their property. Proof is then required to determine if the grantor is incpacitated. To avoid providing proof, a power of attorney is often effective immediately. The grantor must therefore trust that the attorney will not misuse the power of the grantor or the grantor may have the document held by a third party, such as a lawyer, with specific instructions not to release the document until a certain event occurs. Often this includes obtaining a doctor’s report confirming incapacity.

 

In most provinces, the donor must reach the age of majority (the age of majority varies from one province to another) before signing the document. The attorney becomes the agent of the donor. Where unlimited power is granted to the attorney over the donor’s property, the POA becomes a very powerful document. Caution should therefore be used when picking and appointing a person who will be in such position of trust. Concern over the enduring (continuing) power of attorney and the vulnerability of individuals has been addressed in amendments to the Saskatchewan Power of Attorney Act, SS 2003. Under the Saskatchewan law, a person who grants a power of attorney must be an adult and must understand the nature and effect of such an appointment.

 

In Ontario, significant changes have resulted in the area of land registration due to fraudulent transfers of real property by the way of a power of attorney. It is considered that as a general consideration, where a person conducts business in several provinces, a POA for each jurisdiction may be advisable, or at least a review of implementing a power of attorney in the relevant jurisdiction should be considered. Having an “enduring power of attorney” in place for a business owner makes sense and should form part of the business plan.

 

What are the Powers and Duties of the Attorney?

 

A POA may specifically set out in a limited fashion what it is that the attorney is permitted to do under the terms of the appointment or it can be very broad in nature. Most provincial acts provide guidance as to the rights of the donor of the power, and the obligations of the attorney. The Ontario Substitute Decisions Act (SDA) provides that a person named in a POA document can do, on the grantor’s behalf, anything in respect of property that the grantor could do if capable, except make a Will. In other words, the attorney cannot step into the shoes of the donor and become the testator.

 

In addition to the duty to manage the property of the donor, attorneys are also charged with the making of reasonable expenditures for the care and support of the donor and the donor’s dependents.  Provincial legislation sets out the types of expenditures that may be made by the attorney in the case of the donor being incompetent. A unique point to Ontario’s legislation is that an attorney has the option to make gifts or loans to the incapable person’s friends and relatives and to make charitable gifts. No other provincial legislation contains such provisions.

 

Rights of Third Parties

 

An attorney may not use their appointment to circumvent the rights of third parties that may arise under the Will or provincial legislation (e.g. family law legislation). Case law has supported to premise that the integrity of the incapable person’s own estate planning should be protected.

 

Limitations of the Attorney

 

Generally, the common law has imposed certain limitations on the powers that can be delegated to an attorney. The limitations include the following:

 

1. An attorney may not exercise the power of attorney for personal benefit unless authorized to do so under the terms of the document or unless the grantor provides consent;

2. An attorney cannot swear an affidavit or act where the donor’s own personal knowledge or skill is required;

3. An attorney cannot make, change or revoke a Will on behalf of the donor;

4. An attorney cannot assign or delegate his or her authority to another person unless specifically permitted by the document; and

5. An attorney cannot permit personal interests to conflict with those of the donor of the POA.

 

Generally, a fiduciary cannot delegate his or her decision-making functions but may delegate administrative tasks. An attorney may not exercise that which would be considered a testamentary disposition. The power exercised by the attorney must be specific.

 

a) Making a Will on Behalf of a Donor – A person cannot delegate the power to make a Will. An attorney cannot make a testamentary disposition or sign a Will or codicil on behalf of a donor. Some jurisdictions have enacted legislation, which gives the court power to make or change a Will on behalf of an incapable person or to undertake certain estate planning in limited situations that would benefit the grantor.

 

b) Making a RRSP or Pension Plan Designation on Behalf of a Donor – Such designations do constitute testamentary dispositions. For this reason, attorneys appear not to be able to make designation on behalf of a donor. As a general rule, the issue may depend upon the particulars of the plan and the legislation applicable in the province.

 

c) Life insurance Ownership and Designations on Behalf of a Donor – An attorney is not entitled to make, change or revoke a designation of a beneficiary of a life insurance policy on behalf of a donor. This is due to the fact that this would usurp the personal discretion of the insured. Arguably, an attorney may be able to make a designation that illustrates continuity. For instance, a transfer of a life insurance RRSP from one insurance carrier to another where the designation remains the same will be permissible. Generally, a transfer of ownership will not be permitted because it would allow the attorney to change the beneficiary designation upon transfer.

Joint ownership of a policy can result in one owner being unable to deal with the policy as a result of the incapacity of the other owner. Where a joint owner because incapacitated the other owner will be unable to deal with the policy without the other owner’s consent. One way to remedy this situation is to ensure that any power of attorney document drafted specifically addresses the jointly owned policy so that the appointed attorney can deal with issues that arise in relation to the policy.

 

d) Estate Planning by the Attorney on Behalf of the Donor

One of the most important issues that has arisen with the more widespread use of POAs, is the ability of the attorney to engage in tax or probate planning, or other estate planning on behalf of the incapable person. As a rule of thumb, an attorney is best to seek the direction of the court as to the nature and extent of the estate plan. The following provides a sample of inter vivos plans that should be put before the Court for consideration:

 

i) Plans seeking to avoid property being distributed on the incapable person’s dying intestate or with his or her current Will in place;

 

ii) Plans which would anticipate the entitelements of beneficiaries under a Will or under the rules of intestate succession; and

 

iii) Plans to avoid or reduce probate fees and various taxes that may be payable by the estate on death.

 

Other cases have also considered additional factors including the following:

 

i) the possibility, however slim that the incapable person may recover and expect to find his or her affairs as he or she left them; and

 

ii) the necessity of the proposed transaction.

 

The courts seem to allow a plan that creates tax savings or other benefits for the incapable person and his or her family. As long as the interests of the incapable person are protected and he or she will not be deprived of funds needed for his or her care the Court appears to accept such plans.

 

e) Planning with trusts

 

An attorney may consider whether he or she can utilize trusts when tax planning or estate planning on behalf of the incompetent person. With the introduction of this type of planning, opportunities are available through alter ego trusts and joint partner trusts. They may consider transferring property to avoid the application of probate fees/tax where applicable. Alter ego and joint partner trusts are revocable in nature. It is uncertain as to whether an attorney has the power to establish a revocable trust. Since the trust would be created for the sole benefit of the incompetent person during his or her lifetime, it is difficult to imagine that this would not find favour with the Court or meet provincial legislation requirements. However, to avoid any uncertainty as to the availability of the rollover to the trust, an advanced ruling should be sought by the attorney from Canada Revenue Agency (CRA). In turn, CRA may require the attorney to seek court endorsement that the attorney is acting within the scope of his or her power granted in the POA to set up the trust.

While it may be possible to set up a trust by the attorney after incapacity occurs, consideration should be given to setting up the trust in the first instance as an alternative to creating the power of attorney appointment. There are reasons why a trust may be more advantageous to set up and this option should be fully explored to determine if it may be more appropriate for the grantor to take this route.

 

f) Digital assets

 

Grantors should also be considering how digital assets will be dealt with by their attorney. Digital assets include accounts, content, social media, email, software and services, online banking/investment accounts and automated bill payments. It includes online retail e.g. music or books and loyalty rewards. The attorney should be provided information as to usernames and passwords by the grantor in advance in any incapacity if the grantor wishes the attorney to deal with these types of assets.

What is the purpose of the POA for care?

A POA for personal care or a health directive can be drafted for personal care. Such a document can assist the family in understanding what kind of medical treatment the individual would want administered. The purpose of the document is to appoint an attorney to make decisions about such things as health care/personal care, nutrition, shelter, hygiene, and safety. A document of this nature usually specifies what life-sustaining measures can be taken. Entering a discussion about care is an important conversation to have with family members and your family physician.