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

Photo: Contributed

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.