Continuing Powers of Attorney for Property
A Part of Any Incapacity Plan
While it is understandably difficult for clients to turn their minds to the subject of death and ensuring their estate plans are in order, many are unaware of the importance of incapacity planning – meaning what happens while they are alive but are not mentally capable of managing their own property. A Will only becomes effective on death, not during mental incapacity. That is where a Continuing Power of Attorney for Property (as they are called in Ontario) is an extremely important document to have in place in the event you become incapable of managing your own property. But did you know that Continuing Powers of Attorney for Property can also be, in the right circumstances, an effective tool while you are capable?
A Continuing Power of Attorney for Property (“CPOA”) is a document signed by an individual (called the grantor) which authorizes another person or persons (called an attorney – and while attorney means lawyer in the United States, it does not mean so in this context) to do on the grantor’s behalf anything in respect of property that the grantor could do if the grantor was capable. In effect, the attorney steps into the shoes of, and becomes, the grantor under a CPOA. While the authority granted to an attorney can be quite broad, that authority does not allow an attorney to make a Will on behalf of the grantor, change the provisions of the grantor’s existing Will or give a new CPOA for the grantor.
Unlike the name denotes, CPOAs are not used only in relation to real property (i.e. land). Although they can be tailored in scope so that the authority granted to the attorney could be restricted to real estate, for example, the term property refers to all assets owned by the grantor.
One can have multiple CPOAs in existence at the same time. In many circumstances, the grantor can rely on the person(s) appointed under a single CPOA, which contains no conditions or restrictions, to look after all of his or her property (the most common example being spouses appointing each other as their attorney). However, it may be prudent for a grantor with diverse and/or complicated assets to appoint different persons with certain skill sets or knowledge to administer specific assets or categories of assets the grantor owns. This is where multiple powers of attorney for property which are limited in purpose are valuable.
While CPOAs can become effective on incapacity (sometimes referred to as a “springing” power of attorney), depending on the circumstances, a CPOA can be drafted such that it becomes effective upon signing even though the grantor is mentally capable of managing his or her own property. For example, an elderly parent while still mentally capable may find it physically difficult to travel to the bank or other financial institutions to conduct his or her personal business; thus, the parent appoints his or her adult child as attorney with the authority to act in his/her stead. Another example occurs in situations where an individual frequently travels out of the country for business. The appointment of an attorney with authority to act on the grantor’s behalf while he or she is out of the country in order to facilitate the timely administration of his/her property may be desirable. However, careful consideration should be taken as to who the appointed attorney(s) will be and the scope of their authority before signing a power of attorney for property that is effective on signing. In addition, it is important to remember that if an attorney is appointed to act while the grantor is still mentally capable and the grantor wishes the named attorney to continue to act in such capacity if the grantor becomes mentally incapable (often in the case of the elderly parent grantor and adult child attorney) then the power of attorney must either state that it is a CPOA or it must express the intention that the authority given may be exercised during the grantor’s incapacity to manage property. If however, it is not intended for the named attorney to act on any subsequent incapacity, the power of attorney for property should not be drafted as a CPOA (these are sometimes called general powers of attorney for property or simply powers of attorney for property).
It is highly recommended that a grantor name at least one “back-up” attorney in the event the named attorney cannot act. Under Ontario law, if two or more attorneys act jointly under a CPOA and one of the attorneys can no longer act, either because of incapacity, resignation or death, then the remaining attorney or attorneys are authorized to act, unless the CPOA provides otherwise. However, if there is only one attorney named and the CPOA does not provide for the substitution of another person who is able and willing to act then Ontario law states that the CPOA is terminated when the named attorney dies, becomes incapable or resigns. When a CPOA is terminated the result is that no one has the authority to act on the grantor’s behalf in respect of their property. In that case, the only remedy is for a person to make an application to the court to be named as guardian of the incapable person’s property. This is not a simple or inexpensive option.
Grantors who wish to appoint a non-resident attorney for purposes of managing their investments (whether under a CPOA limited to those investments or pursuant to a “blanket” CPOA covering all property) should first ensure that the financial institution that holds the grantor’s investments is able to take instructions from a non-resident attorney as some do not permit it. If the financial institution will not take instructions from a non-resident attorney then the grantor will need to appoint someone else from whom the financial institution will take those instructions. If the grantor’s “pool” of possible attorneys is made up of mostly non-residents, it may mean having multiple CPOAs in existence whereby a resident is appointed with limited authority in respect of investments and a second CPOA appointing someone different to administer all other property.
Consider the situation where a grantor is a shareholder and director of a company. While a CPOA may be used to vote the grantor’s shares in the company (similar to a proxy appointing someone to attend a company meeting and vote on a shareholder’s behalf), a grantor cannot use a CPOA to grant an attorney the authority to vote at a director’s meeting. Most Canadian corporate statutes provide that directors are permitted to sign written resolutions in lieu of voting at a meeting, but alas an attorney for a director could not sign a written resolution for that director in his or her capacity as a director. Directors cannot delegate their powers and have a fiduciary duty to the company. In addition, the corporate statutes provide for qualifications of a director. Capacity is one such qualification so even if there was a CPOA in place, upon the mental incapacity of the grantor he or she is then disqualified as a director. Grantors who are sole shareholders and sole directors of privately-held companies should consider electing additional individuals to the board and/or appointing additional officers to ensure that the affairs of their company continue to be managed seamlessly in the event they ever become mentally incapable.
In Ontario, a CPOA is automatically revoked on a grantor’s death (the grantor’s Will, if he or she has one, then kicks in), and it can also be revoked at any time during the grantor’s lifetime, provided the grantor has the requisite mental capacity. There are formal requirements for revoking a CPOA. If you wish to revoke a CPOA, you should seek legal advice to ensure the proper legal formalities are met. A CPOA will also be revoked if a grantor executes a later CPOA which does not specifically state that there may be multiple CPOAs in existence. In this regard, you should be particularly careful when asked by a bank or other financial institution to sign its standard form CPOA for the limited purpose of carrying out financial transactions with that institution.
What happens if there is no CPOA in place and you become incapable? The process to appoint someone to look after your property just became more complicated and expensive. Now, the only way someone can make decisions on your behalf in respect of your property is via an appointment by the court to be a guardian of your property. If you have property that needs frequent monitoring and management, then the value of that property may diminish pending such an application to the court to have someone appointed guardian of your property. With a valid CPOA in place this step can be avoided.
Jennifer Searle practices in the areas of estate planning and administration as well as corporate and commercial law with McLean & Kerr LLP. In her estates practice, she assists clients in the areas of estate planning for individuals and succession planning for family and private businesses, administration of estates including applications for a certificate of appointment of estate trustee with/without a will, sale of estate assets and providing assistance to estate trustees in their duties, administration of trusts and substitute decision-making and mental capacity planning including continuing powers of attorney for property and powers of attorney for personal care.
* The comments in this article are made in respect of Ontario Continuing Powers of Attorney for Property. While there may be similarities to other Canadian jurisdictions, there are also differences and the advice of local counsel in the appropriate jurisdiction should be sought. The content of this article is intended to provide general information for the reader and is not intended as advice or an opinion to be relied upon in relation to any particular circumstance. For specific applications of the law to a particular set of circumstances, the reader should seek professional advice.
By Jennifer Searle