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This article was originally published by CPA Canada and is reproduced with permission.
Power of attorney. It’s a simple phrase, but full of complex meaning. Granting someone power of attorney means to give someone else the authority to act on your behalf in personal matters.
All North American jurisdictions have legislation to instruct how power of attorney is granted, used, documented and reported. Most legislation is similar, derived from common law and contains the following base requirements:
People generally grant power of attorney to trusted family members, such as spouses, siblings or grown children, in circumstances where they cannot manage their own affairs. Most often, power of attorney is granted to the same person, for all matters – legal, financial, medical or otherwise. Many people take on the power of attorney role for a friend or family member, without fully contemplating or understanding the responsibilities that come with it.
Anne: Power of attorney for her elderly aunt
Anne did a marvellous job as attorney for Aunt Alice and ensured she had good care until the end of her life. What Anne did not do, however, was keep records of purchases or financial transactions conducted on Alice’s behalf. Now, she faces accusations from Anne’s sons of defrauding their mother and her estate.
Brian: Power of attorney for both his mother and father
Brian was a sentimental choice; he was the only son. But Brian was a poor choice. He lived across the country from his parents and sisters, was not interested in their large family farm operation and did not visit or check in often. As a result, Brian mismanaged the farm, causing great business losses and unexpected payments. His sisters sued him for negligence and depletion of their parents’ estate.
Sarah: Power of attorney for her father
As her Dad’s Alzheimer’s quickly took hold of his faculties, she resented her brother’s lack of burden; he no longer lived in the same region. Sarah struggled financially and often “helped herself” to her father’s funds. She felt entitled to self-determined compensation for the time and hardships she bore in his care and monitoring. Sarah soon found herself embroiled in litigation with her brother and her father’s estate regarding the funds she removed from the accounts.
In my practice, I’m often asked to investigate what really happened in power of attorney matters gone awry. Many of these cases sadly have similar characteristics, such as:
A few easy steps can alleviate power or attorney issues and avoid painful family issues and costly litigation.
First, understand that familial relationships don’t always necessitate good financial decisions. If you are considering granting power of attorney to a loved one, ask yourself honestly if this person is up for the task. Attorneys are required to make prudent financial decisions – and sometimes business decisions – in the best interest of the principal and keep meticulous records. Consider granting power of attorney for financial matters to an arms-length individual, or ensuring oversight of the attorney’s actions by someone else, to mitigate potential problems down the road.
Think about the financial circumstances of the potential attorney when making such decisions. Family members are human, and humans are fallible. Easy access to money can be an overwhelming lure when a person is unused to it or is struggling financially themselves. They really just don’t think of consequences to the principal or his / her estate and heirs, until it is too late to be undone.
You can add conditions to limit your attorney’s power and decision-making. For example, you can require your attorney to consult with other family members or experts before conducting a transaction or making a decision. You can restrict the types of investments or business decisions your attorney can make, or specify that your attorney cannot loan your money to anyone, or sell your property.
Be specific and consistent about what powers the attorney has in all your legal documents, and ensure the attorney is aware of all legal requirements in your jurisdiction. Ensure you have independent legal advice and know that no one can force you to grant power of attorney.
Contact Lisa Majeau Gordon, Business Advisor, Forensics and Litigation Support Services, at 780.451.4406 or [email protected].
Related Topics:Family; Lawyers; Trusts
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