Use caution when granting power of attorney for property

Powers of attorney are often granted in anticipation of an individual becoming incapable of managing property, but as Toronto wills and estates lawyer Lisa Laredo writes in The Lawyer’s Daily, there are risks associated with granting a continuing power of attorney for property under the Substitute Decisions Act (SDA).

“The SDA sets out that an attorney for property is a fiduciary whose powers and duties shall be performed diligently, with honesty and integrity and in good faith, for the incapable person’s benefit. A fiduciary must be able to account for all actions taken. An attorney is required to preserve the assets of the incapable person while acting in a way that optimizes his personal care,” explains Laredo, principal of Laredo Law.

Powers of attorney are effective immediately upon being delivered to the attorney, she says, unless there is a provision setting a future effective date.

“In many cases the power of attorney document is delivered to the attorney long before any diminishment of the capacity of the grantor. Such a situation creates the possibility of abuse. The attorney may decide to take certain actions, like the sale of property, without any permission from or consultation with the grantor who may still be capable,” says Laredo.

To avoid this, Laredo says some solicitors have encouraged clients to leave the power of attorney document in the care of the drafting solicitor, with a clear protocol that sets out the circumstances under which it can be released to the attorney and upon what specific evidence of incapacity.

“Such a practice avoids the need to obtain a formal assessment of the grantor prior to the effectiveness of the power of attorney. However, the process also puts the solicitor in the position of deciding whether the evidence is sufficient to prove incapacity,” she writes.

Alternatively, the grant of a power of attorney can specifically set out that it will become effective only when the grantor is incapable of managing property, says Laredo.

If the grant sets out a special method for determining incapacity — a doctor’s letter, for example — Laredo says the need for a formal assessment may be avoided, although she adds that doctor’s letters can be too brief and may show no indication that the physician had any understanding of the legal definition of incapacity.

Gifts, writes Laredo, are another area of concern.

“The SDA sets out provisions regarding the ability of an attorney to make gifts. Gifts are limited to those kinds of gifts normally made by the grantor prior to his incapacity, provided that the making of such gifts does not impair the adequacy of the property available for the care of the incapable person,” she says.

Although the grantor has the power to limit the ability of the attorney to make gifts, Laredo says there is always the possibility of unauthorized depletion of the estate.

At the same time, she writes, if an attorney has misappropriated assets of an incapable grantor, any interested person can apply to a court for directions it considers appropriate, for the benefit of the incapable person and his dependants.

“In addition, any person can apply to the court for an order appointing a guardian of the grantor’s property. Such an order terminates the power of attorney. Where the grantor is capable, the power of attorney may be revoked. An interested party may call in the police,” she adds.

Ultimately, says Laredo, “since a power of attorney for property is open to substantial abuse, it is important that the grantor give careful consideration to whom he is appointing as the attorney. It is also recommended that a substitute attorney be appointed in the event that the primary attorney dies.”