LEGAL UPDATE
CONTINUING POWERS OF ATTORNEY
FOR PROPERTY
January
2002
Introduction
For many years clients of our office
have been asking us whether or not they should have a power of attorney
appointing someone to act for them if they should become incapable of making
decisions for themselves. Many were
acting out of concern that if they failed to do so, "the government would
take over" and they were afraid that the "government would take
everything".
Although, this fear may not be
justified, our answer was (and is) "Yes". The reason is not that the
government would take over but because if a Power of Attorney was not appointed
and a person became mentally incapable of looking after their affairs, the
Public Guardian and Trustee would become the statutory guardian of the person's
property unless or until someone else applied to the Court to be appointed the
statutory guardian of property. It is much easier and less expensive to appoint
someone in advance.
Types of Powers of Attorney
There are two basic types of
powers of attorney. The first is a
power of attorney to do business known as a "continuing power of attorney
for property". The second is a
"power of attorney for personal care" wherein someone is appointed to
make personal care decisions including decisions about health care, if the
person is not able to make them himself.
This Legal Update deals only with continuing powers of attorney for
property. For more information about
Powers of Attorney for Personal Care please refer to our Legal Update entitled
"Powers of Attorney for Personal Care".
Terminology
A person who makes a power of
attorney appointing someone to act on his or her behalf is referred to in this
Legal Update as the "grantor". A person who is appointed to act on
behalf of the grantor is called the "attorney". This person is not the grantor's lawyer but
rather the person appointed to act for him.
The power of attorney itself is
sometimes referred to as the "power".
Historical Note
The law dealing with powers of
attorney is based on the common law of agency, which is founded in the law of
contract. Essentially, a person would
appoint another to act as his agent (or attorney) to do a job for him. The instructions were contained in a
document known as a power of attorney. The appointment was similar to a listing
agreement appointing a real estate broker to sell property.
A power of attorney could
consist of three or four legal size pages of fine print outlining the
attorney's powers. If something was
omitted, the attorney had no power to do it.
Persons dealing with the attorney had to examine the power to ensure the
attorney had the authority to do what he was doing. If the power was not in it,
both the attorney and the person with whom he was dealing acted at their own
risk. The grantor could take the
position that the action was not authorized and refuse to honour it. The documents became very cumbersome to deal
with.
Another problem was that if the
grantor became incompetent, the incompetency had the effect of revoking the
power of attorney. Sometimes banks and other financial institutions continued
to honour powers of attorney when the grantor had become incompetent, but that
was always on an informal basis. If the bank was formally advised of the
incompetency the bank would stop acting on it. If that happened an application
had to be made to the Court to appoint someone to do business on behalf of the
grantor.
In 1979 the Province of Ontario
took a first step to reform the law. It
passed the Powers of Attorney Act.
It did two things. First, it
reversed the law that said an attorney had only those powers that were
specifically granted to him. It said that if a
"prescribed" form of power of attorney was used, the attorney
had all of the powers that could lawfully be given to an attorney. If
the grantor wished to restrict those powers, the restrictions had to be
specified in the document granting the power of attorney.
The second change was that if
the prescribed form contained special words, it would remain in force if the
grantor became mentally incompetent.
The combination of these two
provisions solved the two problems referred to above. A restriction was normally inserted in the document that it was
not to come into force unless the person granting it became incompetent. The
grantor could continue to do the day to day business until such time as the
grantor became incompetent (hopefully never).
If the grantor became incompetent, the attorney, who was a person in
whom the grantor had confidence, could take the grantors' place and do the
grantors' business.
While the Act solved two of the
problems created by the common law, there were others that it did not consider.
The legislators failed to realize that in changing the law, the attorney was no
longer a "contracting" party and was now a "trustee" acting
in a "fiduciary" capacity.
The Act required the attorney to account for the money received and
spent, but the attorney had that obligation under the former law of contract.
Because of the "fiduciary" relationship, the property of the
incompetent could only be used for the benefit of the incompetent. That created
an obvious problem where, for example, one spouse was acting as attorney for
the other, and needed the money from both for their mutual support. In law, the
spouse could not use the money of the incapable spouse for her own support. Obviously it was used, but such use was not
authorized in law.
Another problem was that there
was no incentive for an attorney to act, or, once acting, to continue to act.
The legislation did not provide for compensation for the attorney. Under the former law of contract, the compensation
was arranged by contract between the parties. This did not create a problem if
one spouse was acting for another. It did cause problems in other cases. The
question was asked "If I am not paid, why should I bother?".
In an attempt to resolve these
problems, the government introduced a package of legislation including the Substitute
Decisions Act, 1992. It came into effect on April 1, 1994. It resolved some of the problems created by
the 1979 legislation. There is no
longer a need to use a "prescribed" form. The result is that similar
powers of attorney from other provinces are now recognized in Ontario. A spouse
acting for an incompetent spouse can use the money for her own support. A
schedule of fees was established to compensate attorneys for acting.
Capacity to Give a Continuing
Power of Attorney
The Legislation sets out when a
person is capable of giving a power of attorney. The Legislation in Section 8 says that the grantor must
"(a) know what kind of property he or she has and its approximate value;
(b) is aware of
obligations owed to his or her
dependants;
(c) knows that the
attorney will be able to do on the
persons behalf anything in respect of property that the person could do if capable, except make a will, subject to the conditions and
restrictions set out in the power of
attorney;
(d) know that the
attorney must account for his or her
dealings with the persons property;
(e) knows that he or
she may, if capable, revoke the
continuing power of attorney;
(f) appreciates that
unless the attorney manages the
property prudently its value may decline; and
(g) appreciates the
possibility that the attorney could
misuse the authority given to him or her.
A
continuing power of attorney is valid if the grantor, at the time of executing
it is capable of giving it even if he or she is incapable of managing their own
property.
The focus of this Legal Update
now shifts to the document itself.
Selection of an Attorney
The legislation has solved many
problems, but there are two problems that it cannot solve. These are (1) the grantor must appoint an
attorney who is willing to act; and (2) the need for an attorney who is
completely honest.
The first problem can be
resolved in most cases by talking to the proposed attorney in advance and
obtaining that persons agreement to act. It is possible that the attorney who
has been appointed may be unable or unwilling to act when the time comes,
therefore the appointment of an alternate attorney should be considered.
The grantor must be convinced of
the honesty and integrity of the attorney being appointed in order to resolve
the second problem. Regulations under
the Act require the attorney to give a copy of the accounts to the attorney for
personal care on request. If the attorney for personal care is a person other
than the attorney for property, any concerns with respect to the honesty of the
attorney are reduced. This would be so
if, in addition to the Regulation, the power of attorney itself requires the
attorney to deliver copies of the accounts to other family members on a regular
basis (perhaps each year).
Effective Date
Most people do not want a power
of attorney to come into effect until such time as they become unable to
conduct their own business. A restriction
should be put into the document to that effect. If such a restriction is not
included, the power of attorney will come into effect immediately.
It should also have a mechanism
to trigger the date that it comes into effect.
Normally this is a letter from the family doctor. In the absence of a
triggering mechanism, the legislation provides for an "assessment" of
the grantor to be undertaken by authorized and trained assessors. That assessment can be expensive.
Revocation
One of the problems with a
continuing power of attorney for property is that once it comes into effect, it
will remain in effect until revoked. If it is revoked, it ceases to exist and
cannot again be exercised in the future.
Accordingly if a person is
mentally competent and wishes to leave his business affairs in the hands of
another for a short period of time, a continuing power of attorney for property
should not be used. A separate power of
attorney for a specific purpose or for
a limited time should be prepared.
An example would be a person
authorizing a spouse to sign an offer to purchase of a property on his behalf
if it has been listed and a sale might occur while he is out of the country. In
these days of electronic communication, the use of powers of attorney for a specific
purpose or for a limited time are becoming less common.
Compensation of Attorney
Regulations passed pursuant to
the Substitute Decisions Act, 1992, provide for the following scale of
compensation to be paid to an attorney.
(a) 2.5 percent on capital and income receipts;
(b)2.5 percent on capital and income disbursements; and
(c)two fifths of 1 percent on the average value of the assets as a care
and management fee.
Nothing is said with respect to
out of pocket expenses, but presumably, they would be paid in addition.
If the attorney takes
compensation, the attorney is required to "exercise the degree of care,
diligence and skill that a person in the business of managing the property of
others is required to exercise. If the attorney does not receive compensation
for managing the property, the attorney is required to exercise the degree of
care, diligence and skill that a person of ordinary prudence would exercise in
the conduct of his or her own affairs.
A person appointing another to
act as the attorney may expect the attorney to take compensation. The grantor may also feel that the
requirement that such person be as good as a professional money manager is too
high a responsibility and reduce that responsibility to the "prudent
person" rule.
The compensation awarded to an
attorney does not include the cost of obtaining professional advice and other
out of pocket expenses. The power of attorney should make provision for both.
Powers
and Duties
While the Substitute
Decisions Act provides that an attorney may "do on the grantor's
behalf anything that the grantor could do if capable, except make a will",
the governing legislation and regulations provide that an attorneys powers are
subject to such legislation and regulations.
These require attorneys to do some things and prohibit attorneys from
doing others. The following list is intended as a guide. It is not a
comprehensive list. If there is any question with respect to any item,
reference must be had to the governing legislation.
1. The attorney must make
reasonable efforts to determined whether the incapable person has a will, and
if he has, what it contains. Persons
having custody or control of the grantor's property must supply the attorney
with any information requested and deliver such property to the attorney on
request.
2. The attorney must take
into account the effect on the personal comfort and well being of the
incompetent person and must be made in a manner consistent with decisions
concerning his or her personal care.
3. The attorney must
explain to the incapable person the powers and duties of the attorney and
encourage the incapable person to participate in decisions about his or her
property. There are obviously
situations where this is impossible as well as situations where it is quite
possible.
4. The attorney is to
foster regular personal contact between the incapable person and supportive
family members and friends
5. The attorney must try to
determine whether or not the mentally incapable person has a will and if he
does, determine its contents.
6. The attorney has power
to require other persons holding property on behalf of the mentally incapable
person to give him particulars of that property and any documents in his power
relating to it.
7. The attorney cannot
dispose of property that is specifically dealt with in a will unless it must be
sold to raise the money needed to care for the mentally incapable person.
8. The property of the
mentally incapable person should only be used for the benefit of the mentally
incapable person, for the support of his or her dependants, and to satisfy his
or her other legal obligations. The
standard of living before the person became incompetent and the value of his or
her property should be taken into account.
9. There are rules that
deal with gifts and loans to friends and family and with charitable gifts that
can and cannot be made. It is beyond the scope of this Legal Update to give
full particulars of such gifts and loans.
10. An attorney has power to
apply to the Court for directions on any question arising out of the management
of the property of the mentally incapable person.
Standard of Care
A person acting as an Attorney
must employ the "prudent person" rule of investing. This means that an Attorney cannot make
investments that a normal, prudent person acting reasonably would not
make. If they do make those types of
investments and there is a loss, the Attorney would be liable in damages for
breach of duty to make up the loss. If
the Attorney has acted honestly, reasonably and diligently he may not be held
responsible for that loss.
The Substitutes Decisions
Act, 1992 provides that someone who is receiving compensation for managing
the property is to exercise the same degree of care, diligence and skill that a
person in the business of managing the property of others is required to
exercise. This is a fact that would
have to be taken into account in determining whether or not the Attorney wishes
to be paid for services rendered. The
Power of Attorney can include a term indicating that the Attorney can be paid
if they so chose.
Obligation to Account
The legislation and regulations
contain two provisions with respect to the accounts that must be kept by an
attorney.
The Substitute Decisions Act,
1992, provides for a "passing of accounts" in the form provided for in the Rules of
Court. It also provides that Regulations may be passed governing accounts. The
accounts governed by the Regulation must be delivered to the incapable person
and to the attorney for personal care if requested by either of them. If other
family members wish to receive copies of the accounts you can include a
provision in your Power of Attorney.
Reference should be made to the regulations in force at the time one is
exercising a Power of Attorney to determine the current rules with respect to
the accounting. At a minimum the
Attorney would be required to list all of the incapable person's assets as of
the date they took over managing their affairs as well as a detailed list of all
of the activities, accounts, investments, monies paid out and liabilities
discharged or incurred on behalf of the incompetent person.
Revoking a Power of Attorney
Once
a power of attorney comes into effect, it remains in effect (unless it is for a
limited period) until it is revoked. A
person who is mentally capable has the power to revoke a continuing power of
attorney whether or not it has been exercised.
If it has not been exercised, care must be taken to ensure all copies of
a revoked power of attorney are destroyed.
If it has been exercised, care must be taken to ensure that all persons
acting pursuant to the authority granted to the attorney are notified and that
all copies in their hands are returned and destroyed.
Multiple Powers of Attorney
The Substitute Decisions Act,
1992, contemplates that a person is to have one continuing Power of
Attorney for Property. If more than one
exists the one with the latest date prevails.
Through inadvertence a second continuing power of attorney can be signed
which deals with only a specific asset and does not deal with the incapable
persons entire estate. The most common
situation where this could occur is when a continuing power of attorney has
been signed at the lawyers office, but then to expedite the handling of
affairs, a person may sign a power of attorney over a bank account at their
local banking institution. If the power
of attorney signed at the banking institution is dated later than the original
power of attorney at the lawyer's office, that could have the effect of
inadvertently revoking the original power of attorney. If you do not wish that to occur the grantor
should include a clause in their power of attorney stating that they wish the
general continuing power of attorney for property to continue in effect
notwithstanding that they may sign a power of attorney at a banking institution
to deal with a specific account.
