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The Importance of Powers of Attorney
A power of attorney document is an extremely important part of estate planning yet one of the most misunderstood.
To start, many people confuse the power of attorney (POA) with a will, but these documents are two very different
things and have two very different functions. A will goes into effect on the day you die. A POA applies during
your lifetime and ceases to apply when you die. So you actually need both a POA and a will as they complement,
and do not overlap, each other.
To add a twist to the subject, there are two types of POA: one for property and one for personal care. These two types
are completely separate. They deal with different areas of your life and both are required for effective estate planning.
Power of Attorney for Property
A POA for property gives the designated “attorney” – the person you name on the POA document as your decision maker – legal
control over all your property. “Property” refers to both real property (real estate) and personal property
(all other assets including stocks, RRSPs, and bank accounts).
The purpose of a POA is to make it easy for your designated attorney to access your finances and, in that way, take
care of your property.
Accordingly, your designated attorney has the right to perform such tasks as:
- Removing money from your bank account
- Selling or mortgaging your house
- Selling your stocks and bonds
- Taking money out of your RRSP
Although a POA for property may be used to help you when you can no longer help yourself, it actually goes into effect
the day it is signed.
It’s therefore essential that you have great confidence in your designated attorney. They must be someone you can trust,
without reservation, to use your property for you and not for themselves, or anyone else.
You can specify in the POA document that you must be mentally incapacitated for the POA to take effect, but this
provision is not recommended. That’s because it’s difficult to define and prove “incapacitated” and could mean that
your case goes to court in an attempt to determine whether you can make decisions for yourself or not.
Such a lengthy, complicated and expensive legal process defeats the whole purpose of the POA which, as pointed out
earlier, is to give your designated attorney fast and easy access to your finances, when necessary.
In all cases, you want to choose someone who is good at managing money to be your POA. Your partner may not be the best
choice if you know they have difficulty with money. However, if your partner is trustworthy with money, they may
be the perfect choice.
If you don’t have a valid POA for property in place and you become incapable, the person who wants to manage your
property would need to apply to the courts for the right to do so. The process is time consuming and expensive,
especially when compared to the costs of putting a POA for property in place.
Furthermore, the person who applies for the right to manage your property may not be the person you would have
selected. With a POA in place, you can guarantee that a person of your choosing is in charge of your property.
Power of Attorney for Personal Care
A POA for personal care gives your designated attorney the power to make decisions on your behalf in
relation to medical issues, hospitalization and long-term care when you are no longer capable of making
such decisions yourself. In the case of a POA for personal care, it is a doctor who determines whether
you are able to make such decisions.
If you have specific wishes for a particular treatment or plan of care, you can write them directly
into your POA document. If your wishes are included in the POA document, or if you have expressed your
wishes verbally, your attorney is required by law to make decisions based on those wishes. In
the absence of any specific wishes, your attorney is left to make decisions based on what they
consider to be your best interests.
Once again, you will want to designate someone you trust implicitly to serve as your attorney. They will be making
very important decisions for you regarding your health and long-term care.
Power of Attorney Tips
- Everyone needs to designate a power of attorney, no matter what his or her financial or relationship status.
POA ensures that a person of your choosing is the one who retains the undisputed right to make key decisions about your life.
- Make sure you have created both a power of attorney for property and a power of attorney for personal care, in addition to a will.
- Drafting a power of attorney is inexpensive, especially when compared to the expense potentially created by not having one in place when the need arises. Cost should not be a reason for you to postpone the process of creating your POA.
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