Get yourself a power of attorney

What if you’re incapacitated and can’t manage your money? No one, not even a spouse, has the automatic legal right to take over in an emergency. That’s why you need a power of attorney. Here are tips on how to appoint a substitute decision maker and how to protect against abuses.

Q: Whom should I choose to act as power of attorney for my property?

A: Find someone you really trust, someone who will act in your interests. This is a business arrangement and should be treated as one.

“Many people don’t understand the extensive scope of authority. You’re giving someone the power to go into your bank accounts, take out a loan, even sell your house,” says Judith Wahl, executive director of the Advocacy Centre for the Elderly in Toronto, which provides legal services for low-income seniors.

She often sees adult children using a power of attorney to enrich themselves at a parent’s expense. “Don’t name your children if you think they can rip you off,” Wahl warns. “And even if you trust them, don’t feel guilty about putting limits on the scope of authority.”

Suppose you own a cottage you want to keep in the famiy. Your power of attorney can say that no one has the authority to sell it. It’s perfectly okay to write clauses excluding things that are important to you, such as charities you want to support.

Q: When does a power of attorney come into effect?

A: It operates from the moment it is signed and will continue operating if you become incapacitated. To guard against abuse, you can set up a power of attorney that is triggered only when you’re incapacitated.

This means your substitute decision maker has to get an assessment of your physical and mental state before taking over your finances. You can specify who does the assessment, whether it’s a health professional, social worker or trusted family friend. The cost, if any, comes out of your estate.

Q: Is a Canadian power of attorney accepted in the United States?

A: Not always. “It’s hit and miss, depending on the financial institution,” says Ian Hull, a Toronto estate lawyer. Some banks want to see a U.S. power of attorney. If you’re a snowbird, ask questions when setting up your U.S. account. Find out what’s accepted and what’s not. You can get advance approval of a Canadian power of attorney, ensuring that the financial institution will be receptive when you need to use it.

Q: Should I name more than one person? How would they make decisions together?

A: It’s good to have choices. You can pick two people you trust and make it “either-or.” One acts when the other is not available.

“My advice is to name no more than two people. But if you’re concerned about disputes, add a third and put in a clause saying they need a majority before acting,” Hull says.

Q: What if I set up a joint bank account with a child? Do I still need a power of attorney?

A: A joint bank account is more susceptible to abuse. Your child is the legal owner and can take out all the money.

When you have a power of attorney, your substitute decision makers are required to put your interests ahead of their own. This is a fiduciary duty, the highest standard of care under the law, and can lead to lawsuits if not performed properly.

Some banks tell you to set up a joint account instead of using a power of attorney. “That’s extremely bad advice,” says Wahl. You can put a clause in a power of attorney, saying your substitute decision maker has no authority to open up a joint account.

Ellen Roseman is a business columnist for the Toronto Star and a financial author. She hosts It’s Your Money on the iChannel network. Reach her at [email protected].