Powers of Attorney get a facelift
When you think about estate planning, does your will come to mind first? While it's arguably the cornerstone, your will is only part of the picture.
A will can help effectively manage your estate's financial and legal issues after your death, but challenging situations can arise while you're alive that require the protection of an Enduring Power of Attorney (EPOA).
Since 1979, when British Columbians were first able to make an Enduring Power of Attorney, EPOAs have been governed by a curious mix of legislation and the "common law," that is, case law handed down through court decisions. At times, this combination made it a chore to find consistency or equity when dealing with EPOAs.
However, amendments to the Power of Attorney Act were put in place September 2011 which strengthen, streamline and clarify the use of EPOAs. Some changes relate only to new EPOAs and don't affect agreements in place, while others widen the protection offered.
Here's an overview of the changes that came into effect.
Changes affecting the attorney
Responsibilities are clearly spelled out. Surprisingly, the Power of Attorney Act didn't speak to the obligations the "attorney" had to the "adult", the person whom they're appointed to act on behalf of. It was left to the common law to guide attorneys in acting for those they represented. Now, the amendments specify what an attorney must do, including:
- acting in the adult's best interests and in good faith, exercising prudence, skill and diligence
- keeping records, including tracking the adult's property, bank statements and income
- leaving property at the adult's disposal and separate from the attorney's (unless jointly owned before the EPOA was made)
- managing investments prudently; an attorney is permitted to use qualified investment specialists if required
A new provision affecting all EPOAs allows an attorney to make a gift or loan consistent with the adult's past behaviour, such as a donation to a favourite charity or loan to a family member. The Act also put in place limits to ensure sufficient property remains to look after the adult's needs.
Restrictions on who can be appointed. Under the new act, you cannot appoint anyone who is compensated for providing health or personal care to you as your attorney except a spouse, parent or child. This restriction only applies to new EPOAs written after September 1, 2011; an EPOA you've already granted doesn't have to be changed.
A related restriction that now affects all EPOAs, old and new, specifies you cannot appoint an employee of a licensed care facility where you live, except for your spouse, parent or child. This means if you have an EPOA made before September 1 with a facility employee named, that appointment is no longer valid.
Multiple witnesses required. If you're thinking about creating a new EPOA, your attorney will have to sign the document in front of two witnesses before using it (or a single witness if a lawyer or notary). The witnesses must be someone other than the attorney, a spouse, child or parent of the attorney, a financial institution, or someone who does not understand the person granting the POA (i.e. speaks a foreign language). You will also have to sign and date the document. This doesn't affect EPOAs already in force.
Procedures to revoke and resign authority. The amendments detail how you can revoke an EPOA and how your attorney can resign. The Act now spells out what information the revocation/resignation notice must contain and how it should be delivered. Previously, an Enduring Power of Attorney only ended when the adult died. There are now three new situations where an EPOA automatically ends:
1. Your attorney goes bankrupt;
2. Your attorney is convicted of an offence where you're the victim;
3. There’s a marriage breakdown and the spouse is named as attorney.
Handling beneficiaries. Although the attorney cannot change an adult's beneficiary on financial products like RRSPs and RRIFs without a court order, they can renew, replace or convert a beneficiary designation provided that beneficiary remains the same, or designate the adult's estate in a new instrument that is not renewing, replacing or converting a similar instrument. This comes in handy if, for example, the adult's RRSP is transferred to a new financial institution which will require a beneficiary designation to be made.
Mental capacity test formalized
It's well established in law that someone who's mentally incapable cannot grant an Enduring Power of Attorney. But determining mental capacity has been a more difficult challenge. The new Act now sets out a list of standards for the adult to meet to be judged capable. These requirements, applying only to new EPOAs, test the adult's ability to comprehend the extent of their financial affairs and property which the attorney would assume control of. This means no one should wait too long before putting an EPOA in place. Satisfying the mental competency standards can be challenging for aging parents or other individuals.
Honouring documents made outside of BC.
Along with Alberta, BC has been the only province to experience consistent population growth from interprovincial migration since 2003. It's a good bet many of these new arrivals continue to hold assets in one province even as they live in another. Amendments to the Act recognize this reality and allow an Enduring Power of Attorney made outside of BC to now be valid here if it's compliant with the Act, although in certain circumstances additional procedures may be required.
The Representation Agreement.
The Representation Agreement, which allows your attorney or other representative to look after your personal needs ranging from medical treatment and nutrition to clothing and shelter, has its own Act which also saw a series of amendments come into effect September 2012.
As with the new rules for EPOAs, your representative must follow the requirements for attorneys laid out in the Power of Attorney Act. Similarly, you cannot appoint someone who is paid to provide you with health or personal care services or is an employee of a care facility where you live to act as your representative (unless it's your spouse, parent or child). Whoever you choose must keep records and cannot move, restrain or manage you against your will.
Time to review?
If you have an existing Enduring Power of Attorney, or you are an attorney acting on someone else's behalf, it's important to review your document to make sure it complies with the revised laws. Not doing so may hamper – or even prevent – your attorney's ability to act.
If you don't have an EPOA, but are contemplating one, you must know what powers the amendments to the Act grant, but also what they expect from you and your attorney.
Even though the rule changes concentrate on EPOAs, a few requirements, such as having the attorney act in the adult's best interests for example, can apply to an Ordinary Power of Attorney as well. It's best to check with your advisor on how any Ordinary Power of Attorney you've made may be affected.
As a general rule it's a good idea to review your personal planning tools – your will, EPOA and Representation Agreement – every few years to make sure they're still current and relevant. It's also a must to revisit these documents any time you go through a major life change like divorce, remarriage, buying a home or business, retirement, or if you, your attorney or children move to another jurisdiction.
Planning for the threat of mental incapacity is an important part of having an effective estate plan. But it can be a tricky area to handle properly. Your BlueShore Financial advisor has a network of financial and legal specialists at their disposal and can explain the recent changes in the law affecting EPOAs. They'll partner with you to find a planning solution that works for you and your loved ones.