Have a back-up in place when naming a power of attorney

Planning contingencies

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Effective planning in advance is important when setting up a power of attorney.

Life’s curve balls can mess with the best-intentioned plans.

Take Peter, whose wife Irene has dementia. Irene has always looked after the family’s financial affairs. Peter learns the financial ropes from Irene at the first signs of dementia. He also ensures that Irene appoints him as attorney under a power of attorney document.

He learns that having familiar surroundings is helpful for those suffering from dementia. He resolves to keep Irene with him in their home for as long as possible. The couple has sufficient assets that they can afford to bring in outside help in addition to whatever level of support is provided though the public medical system.

Anticipating Irene’s dementia will eventually progress to the point that a care facility is inevitable, Irene transfers her assets to Peter so her income will be low. They have learned that a patient’s cost of being in cared for in a facility is tied to their income. The lower their income reported on their income tax return, the lower the cost.

Irene’s dementia inevitably progresses. The familiar surroundings of home become more and more important for Irene’s emotional wellbeing. Peter sees what happens to Irene’s emotional state when she’s taken out of the home for even brief periods of respite care.

Then the curve ball hits. It doesn’t occur to Peter, whose health has been so very good, that he might die while Irene still requires his care. The power of attorney document that Irene signed appoints only Peter as attorney. There is no alternate. Nobody can step in to look after Irene’s financial affairs. Nobody can make arrangements for in-home support services to keep Irene in her familiar home surroundings.

Even if there was an alternate attorney by power of attorney, they will not have the financial means to do anything. Irene’s financial circumstances are meagre. With all assets having been transferred to Peter, Irene’s only financial resources are CPP and OAS.

Lots of financial resources will flow to Irene because she’s Peter’s beneficiary in his will, but nothing can be accessed until a probate grant is obtained. With a law firm giving it top priority and a super efficient court registry, it will take at least two months for Peter’s assets to be unlocked with a probate grant. Irene’s world is turned upside down with an abysmal outcome—the most familiar person in her life has disappeared from her life and she is moved into an unfamiliar care facility.

Effective planning requires consideration all the possible contingencies.

What could Peter have done differently?

Always name one or more alternate attorneys when making a power of attorney. Yes, it’s easy to make a new power of attorney if something happens to your primary attorney but that “easy” becomes “impossible” if you’ve lost the cognitive capacity to do that.

Ensure there are funds available to those you are financially supporting to tide them over for the minimum couple months between your death and a probate grant that allows your executor to start accessing your assets.

One way to do that is to maintain a joint account (investment or savings) with your executor. With documentation setting out the purpose of that account, you can restrict your executor’s access to the account while you’re alive and ensure your executor uses those account proceeds only for estate purposes after your death.

There are several other options as well that you can discuss with your financial planner, accountant and legal advisor.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Clauses to consider in a power of attorney

Power of attorney tips

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Specific clauses can make sure your wishes are followed in a power of attorney.

I ended my column last week with the warning that not all powers of attorney are the same.

They can be as simple as a one-page form or quite extensive. This week I’m giving you examples of why you might want particular types of clauses in your power of attorney.

Compensation clause

The Power of Attorney Act, section 24(1), says “…an attorney must not be compensated for acting as an adult’s attorney unless the enduring power of attorney expressly authorizes the compensation and sets the amount or rate.”

It can feel esteeming for a parent to choose one of their children to be named in their power of attorney or for a close friend to be chosen. Of course, you would be honoured to help your parent or a close friend during their time of need.

But you’re likely to face much more than a one-and-done-type of role if the need arises.

I’ve heard several stories about how extensive the work can be. None of the folks sharing those stories received any compensation because the power of attorney didn’t provide for it.

The work is an imposition on your attorney’s life, upsetting whatever work-life balance they’ve achieved. If they had wanted a second job, they would have gotten one. They’re providing the services for you at a time when your cognitive capacity has declined to the point your relationship with them may be very different from what it had been.

In my view, it makes sense to provide for a reasonable level of compensation for those services.

That begs the question: What’s a reasonable level of compensation? In my opinion, the compensation should be considerably higher than what your appointed attorney earns in their job. Again, if they wanted a second job, they would have gotten one.

Depending on the attorney’s earnings, $50 per hour might seem reasonable—or really low. It’s important to also consider that $50 per hour might seem like a lot at the time you make the power of attorney, but not so much by the time your appointed attorney might need to step in, both because your attorney’s income is likely to increase over time and because of inflation.

Whatever rate you choose, it can be indexed to inflation. I’ve typically recommended a rate of $75 per hour.

Pet clause

Another type of clause you might want to consider is a pet clause.

For some folks, money is no object when it comes to caring for their pets. Many love their pets like they would a child. Perhaps even more so.

Basic pet care expenses can be high—veterinarian bills for dental care, injuries and illnesses can become many thousands of dollars. As long as you have the cognitive capacity to do so, you can choose to spend your wealth on your pet to your heart’s desire, with no concern about depleting your children’s inheritance or even compromising your own financial stability. Things change if you lose that cognitive capacity.

Your attorney might have very different values when it comes to spending money on a pet and the beneficiaries in your will might be hawkishly watching to ensure their inheritance isn’t depleted by frivolous expenditures.

A clause that specifically authorizes and directs your attorney about the care of your pet and the level of priority to put on those expenditures will allow for your pet to continue enjoying the level of care you would have chosen to provide.

Gift clauses

There are default restrictions about how an appointed attorney can deal with your money.

A power of attorney cannot be used to give gifts beyond the lesser of $5,000 and 10% of your income in a given year. Also, it cannot be used by your attorney to give any of your money or property to themselves.

Good restrictions—or maybe not. Consider that if appointing your child as your attorney. You might have chosen, if cognitively capable, to help them out financially with their purchase of a home, the cost of particularly expensive medical care or even to take your grandchildren to Disneyland.

If, at the end stages of your life and incapable of doing so yourself because you’re in a coma or otherwise cognitively incapable, I expect you’d want your appointed attorney to transfer your assets to your children before you die to eliminate the time and expense of probate.

Appropriate clauses can remove the default restrictions and allow for your attorney to handle your financial affairs in the ways that you would have wanted them to be handled.

These are just some examples of variations of power of attorney document. A power of attorney isn’t a one size fits all document.

Your particular circumstances and wishes need to be considered for an optimal document to be drafted.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Maybe a power of attorney is not wasted on the young after all

Power of attorney reviewed

Photo: Nicolay Eskin

A power of attorney is an important part of estate planning.

Reader feedback prompted this follow-up to last week’s column.

The accused me of giving inaccurate information and poor advice. No hard feelings to the reader, I know he meant well, and thanks for clearly articulating his concerns, which I will address.

Those following this column might remember the one published March 31, 2024, about conflicts of interest. It addressed the elephant in the room when considering the advice of a lawyer columnist.

I am not just a columnist, I am also a lawyer running a law firm. I could choose to use my column in a self-interested way, persuading readers that particular legal services are necessary even if they are not. I genuinely intend to provide helpful legal opinions and information.

I get a kick out of helping people, which I believe is a universal human trait. I do my best to be vigilant and not to allow self-interest to get in the way. Maybe I was too vigilant last week.

I provided a cost-benefit analysis that pointed against a young person incurring the expense of a power of attorney. An easy sales pitch for a power of attorney is that it’s a choice between paying a small amount now or leaving it to your loved ones to pay a whole lot more later.

If you lose your cognitive capacity without having appointed someone to look after your financial affairs, your loved ones will need to go through an expensive court process to have a committee appointed. Until that happens, your bank and investment accounts will be inaccessible, as well as the title to your home.

I ran the numbers and concluded a financial analysis favours a young person waiting until later in life (their 50s) when they’re going to appoint new attorneys anyway (likely their children). The odds of losing your cognitive capacity before your 50s are very, very low. But, as my reader pointed out, it does happen—and not just by age-related dementia. A head injury, stroke or other extreme medical event can occur at any time, leaving you with a prolonged or permanent loss of cognitive capacity.

If you’ve not made a power of attorney appointing someone to look after your financial affairs, your loved ones will have to come up with the $10,000 to $15,000 to have a committee appointed in the context of an incredibly high stress situation and while facing the loss of your income stream.

Maybe the cost of a power of attorney should be looked at like the cost of insurance.

Insurance never passes a financial cost-benefit analysis. The insurance company makes a profit which gets worked into the premiums. But we still pony up premiums for house, car, life, disability and health insurance. The benefit side of the ledger should go beyond a strictly financial analysis.

I briefly pointed out the convenience aspect of a power of attorney, noting if you develop mobility issues, your appointed attorney can attend bank and legal appointments for you.

The reader asserted it can go beyond convenience and become a necessity issue if you’re out of the country when time sensitive documents must be signed, such as real estate conveyancing documents. Planning ahead should eliminate that contingency, but I have his point.

I had also briefly shared a fraud protection benefit which he asked me to explain.

Fraud artists are very good at what they do. I’ve recently been consulted by an incredibly intelligent person who was duped out of tens of thousands of dollars believing she was helping investigate bad actors in her bank. She and her adult children met with her bank representatives to figure out how the fraud was allowed to happen and how to help prevent it in the future.

The fraud artists gave her plausible explanations to pass on to bank representatives so they wouldn’t suspect foul play when investments were cashed in. There were no red flags from the bank’s perspective.

The bank suggested she make a power of attorney, appointing her children, to help protect against future fraud. Armed with the power of attorney, the children could monitor the accounts.

Had a power of attorney been in place, the children would have immediately known something was up and been able to step in to stop the fraud in its tracks.

I am prepared to agree with the the reader and another who also who also reached out who said I undersold the power of attorney. One concluded his comments saying the cost of a power of attorney may be the best money you can spend. The other suggested any person who cares about their family should get a power of attorney.

So, I stand corrected.

I will conclude with a warning that not all powers of attorney are the same. They can be as simple as a one-page form or be quite extensive. Next week I will explain why you might want more than the simple one-page form.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

It makes financial sense for a young person to wait to create a power of attorney

Creating a power of attorney

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Based on cost, a power of attorney may be something best left until later in life, says columnist Paul Hergott.

Does a power of attorney survive a cost benefit analysis? Maybe not for a young person.

Nailing down the cost end of the analysis would require calling around to lawyers and notaries to find out their rates, which I haven’t done. However, a bit of Internet searching led me to a handful of lawyer and notary websites. Listed fees for a single power of attorney ranged from $225 to $425. I found it interesting the cheapest rate was from a lawyer and most expensive from a notary, but this was a very small sample.

The absolute cheapest is the “do-it-yourself” option, which I wrote about in my column published March 10, 2024. I included a link to a free, online form provided by the Province of British Columbia. I’ve since learned, though, that some organizations might not honour a do-it-yourself document, even if the document is perfectly valid under the law. I intend to dig deeper and write specifically about that issue in a future column.

Because of my lack of market research, I will shoot low and assume a power of attorney is going to cost you at least $200, inclusive of taxes and disbursements.

The benefits of a power of attorney

One benefit is convenience. It’s impossible to put a dollar figure on convenience, so I’ll disregard it for the purpose of this analysis. Consider empowering your adult child to attend banking and legal appointments for you if you develop mobility issues.

Another benefit is peace of mind. I was recently consulted by a senior who was a victim of fraud. In consultation with their bank, they wanted to appoint their children as powers of attorney to help guard against being victimized again, a recommendation by their bank. I’ll disregard that unquantifiable benefit from the analysis as well.

The key benefit I’ve always pointed to when advising my clients is avoiding a much higher cost if you happen to lose your cognitive capacity without having a power of attorney in place. Loss of cognitive capacity means a loss of ability to handle your financial affairs.

Your spouse, if you have one, won’t be able to sell or remortgage your jointly owned home if you’ve lost the capacity to sign the transfer or mortgage papers. Your loved ones won’t be able to handle your day-to-day financial affairs.

Without a power of attorney, a “committee” will have to be appointed pursuant to the Patients Property Act, by way of an expensive court procedure. One law firm quotes $10,000 to $12,500 for an uncontested committee application. I’ll use the high end of that expense for this analysis.

Certainly, it’s worthwhile to spend $200 to avoid having to spend $12,500 but that’s not a fair analysis for a young person.

I recently recommended against spending that smaller amount of money to a young couple in their 20s.

It was not because I’m looking to make a bunch of money doing committee applications. I don’t provide that service. It was because a power of attorney is not “one-and-done”. Your choice of who to appoint as your power of attorney will likely change over time.

In your 20s, you’re likely to appoint your spouse, with a parent or sibling as an alternate in case your spouse dies before you do. In your 50s and 60s, you’re much more likely to choose an adult child as your alternate.

Is it worthwhile to incur the expense of a power of attorney in your 20s if you’re going to want a new one 30 years later? A proper analysis requires the odds that you will lose your cognitive capacity over that time period.

The Government of Canada provides the statistic that the prevalence of diagnosed dementia in Canadians aged 65 to 69 is 0.8%. I couldn’t find statistics for those aged 55, but obviously it’s something significantly less. The cost comparison of $200 to $12,500 is much higher, i.e. 1.6%.

But you need to take the value of the money into account if you took that $200 and invested it over 30 years. Using a Bank of Canada tool, assuming average interest and inflation rates of 8% and 2.5% respectively, that $200 would grow to about $950. That cost comparison of $950 to $12,500 is 7.6%.

The bottom line is, on a strictly financial and statistical analysis, it makes sense for a young person to wait to make their power of attorney until later in life when they would want to redo their power of attorney anyway.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.