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BMO Nesbitt Burns
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The Importance of Appointing a Power of Attorney in the Event of Sudden Incapacity
One of the most challenging prospects of adulthood is facing the growing concern that your parents may soon reach a point where they are no longer able to care for themselves. As an aging parent, this fear is twofold as you grapple with the likelihood of this reality and the burden it can place on your family and friends. A loss of mental capacity can occur suddenly and unexpectedly, so it is important to make arrangements for a Power of Attorney while you have your health. Experienced Financial Transition Advisors often hear from clients “I am worried about my parent’s behaviour and their diminishing mental ability”. If this strikes a chord, you may be dealing with an issue of incapacity with an elderly parent. Incapacity is not so easily determined and often involves a great deal of emotion including denial, sadness and confusion from both parties. Below, we examine some of the misconceptions people hold when it comes to appointing a Power of Attorney (POA).
There are two elements that are considered when determining incapacity - the degree of incapacity, partial or total, and the duration of incapacity, temporary or permanent. These elements are assessed through a medical evaluation in which an individual’s state of health and the relevant conditions, illnesses and symptoms are identified that may impact their mental abilities. Second, a psychosocial evaluation may be conducted to determine an individual’s ability to act independently and their need for supervision. The degree and duration of your incapacity will determine the next steps of your appointed POA.
Power of Attorney
A POA is a legal vehicle that ensures your affairs will be managed efficiently in the event that you lose the capacity to manage them yourself. A POA is a document in which you appoint another person as your secondary decision maker and legally transfer authority to that person to make financial decisions on your behalf. You may limit your POA to specific assets such as bank accounts, securities, specific business affairs, or authorize your attorney to sell some of your real property for a specific period of time. A POA is effective should you become mentally incapable or have to be absent for an extended period of time, and impossible to reach.
Why is a POA so important to my Financial Plan?
- Family members are not automatically authorized. If you experience a sudden loss of mental capacity and have not appointed a POA, your family members will have to go through the costly and time-consuming process of obtaining a court order or approval of a provincial government official. Further, there is no guarantee of approval and the court may appoint a representative that you do not approve of to handle your financial and property affairs.
- Total ownership is not transferred with joint assets. Your spouse or joint owner will not be able to sell or mortgage a jointly-owned home or any other real property without your signature or that of your attorney. If you have no attorney, the court may appoint a representative.
- You cannot always plan for incapacity. Incapacity can be sudden and unexpected. For example, dementia and Alzheimer’s can progress rapidly depending on the individual, or your parent may endure a coma due to an accident. Despite your ability to recover from trauma, in that lost time it is important to have someone you trust handling your day-to-day affairs.
In selecting your POA, consider the nature and complexity of the tasks they may have to perform. It may be a wise choice to consider a trust company for your attorney. However, if you do elect your spouse, it is a smart choice to appoint an advisor to work alongside or as an executor to your spouse. For reasons such as: you and your spouse may travel outside of the country together or be involved in the same accident, your spouse could become incapable or pass away while acting as your POA or simply, they may not be familiar with making investment decisions or your financial workings.