As we age, we think more about the “what if” scenarios. Should you become incapacitated, who will take care of your finances? If you’re moving to an assisted living home, can someone sell your house? A power of attorney is an important document that can help you prepare for such events. Here’s what you need to know as you consider what to include in yours.
What Is a Power of Attorney?
A power of attorney document grants a person called the “attorney” the authority to manage your finances and assets for you. This person does not need to be an actual lawyer to be called an “attorney.” Creating a power of attorney is not mandatory, but it could help in the event you are incapacitated or unable to make decisions.
Naming a Power of Attorney
Someone who has power of attorney will have complete access to your finances and property. However, this person is legally obligated to act in your best interest when using their power of attorney.
It’s possible to name multiple people in your power of attorney document, but this could cause confusion and frustration should a disagreement arise.
In some cases, it may be beneficial to name a close professional advisor as your attorney. If your finances are especially complex, a professional who has been part of your advisory team may have greater insight into how they should be managed and handled moving forward. Or, you may not wish to cause conflict amongst family members. In this case, choosing a neutral and unbiased third party could be the answer.
Just remember that choosing a professional as your power of attorney may incur fees.
How to Name a Power of Attorney
You should never feel pressured by someone to sign a power of attorney document. It would be best if you decided to do this for yourself, not something anyone forces you into.
To create a power of attorney document, you must be mentally capable at the time of signing. This will generally mean understanding the financial and legal decisions surrounding your estate and the consequences of these decisions. The specific definition and requirements will vary by province or territory.
Types of Power of Attorney
When naming a power of attorney, there are two common types: general power and continuing or enduring power. Again, the specifics regarding each type may vary by territory or province.
General Power of Attorney
This document would give your attorney power overall (or some) of your property and finances. This power only exists while you are mentally capable of managing your affairs. Once you are deemed mentally incapable, the general power of attorney ends.
You have the option to let your general power of attorney be “limited” or “specific.” This means the attorney would have power for a specified period or a specified task.
Continuing Power of Attorney
A continuing or enduring power of attorney allows your attorney to continue making decisions on your behalf should you become mentally incapable. You can have your power of attorney go into effect as soon as the paperwork is signed. In some instances, you may be able to specify that your power of attorney only goes into effect after you’ve been deemed mentally incapable.
Abilities & Limitations of a Power of Attorney
The amount of authority your attorney will have is dependent on the type of power of attorney document you create and the limitations you outline within that document. If no limitations are presented, your attorney will have full access to your finances and property.
While your attorney will have the power to buy or sell property in your name, sign cheques and do your banking, none of the money or property is owned by them. Everything is still in your name, and they only have the power to make the transactions.
Your attorney will not have the ability to:
- Make or change your will
- Change the beneficiary on your life insurance policy
- Give power of attorney to someone else
Depending on your location, you may be able to prepare documents that allow your attorney to make health-related and non-financial decisions on your behalf.
Other names for these types of documents may include:
- Personal or health directives
- Representation agreements
Naming a power of attorney while you are of sound mind and body can provide great comfort and relief. It can serve a practical purpose in planning ahead and provide flexibility in the type and amount of power granted to others. Work closely with your financial professional to address any concerns you may have, as choosing an attorney is an important decision.
Please consult financial, legal, or tax professionals for information specific to your situation. The information and material presented are general, may have changed since the published date shown, and should not be considered financial advice. LetsPlan.ca is published in Canada exclusively for residents of Canadian jurisdictions where our products and services may be legally offered. The services offered within this site are available exclusively through our Canadian advisors. While we often provide original content, Twenty Over Ten initially provided the subject matter for this post. It has since been edited, reviewed and approved by our Privacy and Compliance Officer. Advisors may only conduct business with residents of the province(s) in which they are licensed and registered.