Wealth management preserves and grows your wealth, while estate planning organizes it based on your wishes for when your gone. The common denominator? For starters, a strong wealth manager helps you reflect your goals and values in your financial plans and decisions. Adequate wealth management often goes hand in hand with power of attorney. This essential document helps you carry out your wishes for your financial affairs for when you’re no longer able to. So what is power of attorney all about in Canada? Does it protect your wealth indefinitely, and why do you really need one? We’ll answer all those questions and more in this article. Continue reading to learn more!
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What is power of attorney in Canada?
Power of attorney, or POA for short, is a legal document granting a person of your choice the authority to manage your estate (assets, cash, and property) on your behalf. Your power of attorney should be someone you trust; a close friend, trusted financial professional, or family member. Don’t get torn up by the “attorney” part — you don’t have to grant power of attorney to a lawyer.
Canada also has a few guidelines for establishing power of attorney. RBC’s Wealth Management department discusses a few ground rules:
- Must be in writing
- Donor must be 18 years of age or older or age of majority
- Document must be signed by the donor, attorney-in-fact, and witnesses
In case you’re wondering, a “donor” is the person who is appointing power of attorney to another person. Sometimes a donor is also referred to as a grantor. The most foolproof way to establish your power of attorney is alongside a lawyer. But you have other avenues as well.
Some businesses offer DIY power of attorney kits that prompt you with fill-out forms to create the document. Willful is a popular option. But even if you do create one with a service like Willful, it’s always best practice to have a legal professional review it. One error could be costly and threaten your autonomy in how the POA is carried out.
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The Ontario government recommends you get a lawyer for POA if you:
- Own a business
- Have complicated family circumstances
- Own property overseas or across the country
- Plan to give someone POA over your bank accounts
What does a power of attorney do?
A power of attorney manages your financial affairs when you’re not able to. This could mean you’ve become infirm and cannot manage your finances on your own anymore. Alternatively, you may want to appoint a POA to manage a period of time in your life where you are not present, such as on an extended vacation.
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Here are some tasks you might grant them the authority to do:
- Buy or sell real estate
- Manage investments and property
- Purchase goods
- Sign cheques
- Manage online banking and bank accounts
Your POA document might outline a few more duties through extra clauses like:
- Giving gifts and donations to third parties and charities
- Transferring investment powers to a financial advisor or manager
- Adjusting beneficiary designations on investment accounts, insurance policies, and more
Keep in mind that whoever you grant power of attorney to doesn’t get their name on any of your assets. They’re simply authorized to manage those assets on your behalf. In addition, they have a fiduciary responsibility to you and must act in your best interest. In other words, they cannot manage your affairs in a way that benefits them personally.
But when exactly does that authorization begin? As soon as everyone signs on the dotted line, including the donor, POA and witnesses. And for how long? That’s up to you. POAs can have a limited timeline or scope, or be overarching. For example, you might have a POA for your extended vacation, or solely to handle a property sale.
One common question that our wealth managers hear is: “Does my power of attorney execute my will?”
The answer is no. The two items are completely separate. Your will is carried out by an executor, who disperses your assets to beneficiaries and handles final tax returns. However, it is possible to appoint the same individual as both your executor and power of attorney.
Power of attorney also comes into play for healthcare matters, though that’s a separate document. This would grant someone the right to make decisions about your medical care on your behalf. One example would be continuing with a certain treatment. For now, we’re talking solely about the right to manage your financial affairs.
Attorney-in-Fact vs Power of Attorney: What’s the difference?
Power of attorney is the legal document that lays out the roles, responsibilities, and permissions for whoever you are trusting to manage your financial affairs on your behalf. Attorney-in-fact is the person whom you have appointed power of attorney.
What happens if there is no power of attorney?
The short answer? You leave your financial affairs and appointment of POA up to the government. A representative so removed from your personal life and values that they couldn’t possibly act in your best interest. Without a power of attorney, you forfeit your ability to continue managing your assets the way you desire once you become incapacitated.
In this scenario, your provincial government would act as POA. In Ontario, the Office of the Public Guardian and Trustee would appoint a representative to have POA and act on your behalf.
Related Reading: Trust Return Guide
Who can I make my power of attorney?
You have a lot of leeway in who you choose to be granted your power of attorney. Canada doesn’t require this person to be a citizen or even a resident, though it’s more convenient if they understand each province’s unique guidelines and laws surrounding POAs.
The main requirement is that they must be over the age of majority (18 or 19 in most provinces and territories). Here are some common picks for POA:
- Trusted friend
- Family member
- Lawyer
- Wealth manager
Still, the most important criterion past the above is reliability. Is this a person that you trust with your entire estate? Someone you trust will maintain your financial stability when you’re unable to? Are they responsible? Maybe you trust your brother with your life, but his poor lifestyle choices and immense debt might not make him the best for POA. Additionally, they should be reliable enough that they’ll respond and act in an emergency.
Can I choose more than one power of attorney?
Yes. You can do this one of two ways. First, you appoint two people with power of attorney to act jointly for your financial affairs. In the document, you would have to specify if they must act jointly (agree on all financial decisions), or if you want them to manage separate aspects of your financial affairs individually. Additionally, you might have one power of attorney for your financial affairs and another for your health and personal care.
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If you’re contemplating granting two people power of attorney, take time to really consider your decision. The last thing you want is for your financial wishes to be interrupted or delayed because your two choices can’t agree on a particular item. But at the same time, two heads are better than one. It all depends on your circumstances and goals when choosing if one or more POAs are appropriate.
Can you pay yourself with power of attorney?
Yes, attorneys-in-fact are entitled to compensation amounts dependent on each province’s guidelines (more on that later). If you’re a donor appointing power of attorney, you can certainly outline payments to yourself from difference sources of income.
What is the penalty for abuse of power of attorney?
It’s hard to imagine someone you trust with POA abusing their power. But unfortunately, it does happen — especially in cases tied to elder abuse. But abuse of power could come in more innocent ways, too. For example, your attorney-in-fact might be ignorant of their responsibilities or laws surrounding POA. Or, a new conflict of interest could confuse them and make their decisions biased.
If a bank suspects your power of attorney is abusing their power or not acting in your best interest, they can legally refuse their requests. Of course, banks might also conduct an investigation to authenticate a POA document.
In terms of criminality? Penalties vary on a case-by-case basis and falls within the realm of criminal law, in most instances. But some common charges for POA abuse could include fraud, embezzlement, and neglect.
How much does power of attorney cost in Canada?
You’re looking at POA costs in two areas:
- Establishing and drafting the document
- Attorney-in-fact compensation
Let’s start with drafting the POA. This could cost you anywhere from $40 to $500, depending on whether you use a DIY kit or consult a lawyer. Of course, more complicated financial pictures could warrant higher charges from lawyers if the drafting takes up a lot of time.
Then, there’s compensation. Your POA document should clearly specify any compensation you’ll be awarding your attorney-in-fact in exchange for their services, even if it’s $0. However, specific provinces might have baseline entitlements. For example, in Ontario, your attorney-in-fact is generally entitled to 3% of capital receipts and income, and 0.6% of investments they manage. During the POA drafting phase, you can evaluate the minimum costs and how much you want to spend.
Using Power of Attorney to Maintain Wealth
Financial documents like wills, trusts, powers of attorney, and prenuptial agreements might be intimidating to approach as a beginner, but they’re meant to protect your financial interests. Your power of attorney helps you maintain autonomy over your financial affairs instead of handing that autonomy to the government or another person.
Still, you might wonder what specific actions and responsibilities you should lay out for your attorney-in-fact. That’s where a wealth manager can assist. We connect Canadians like yourselves to certified wealth managers to help you plan for tax obligations, structure your investments, and advise you on the most efficient ways to grow and preserve your wealth. Book a call with a wealth manager today!