When should a power of attorney for property come into effect?

The pros and cons of “immediate” versus “springing”

Under a continuing power of attorney for property (for ease of reference, referred to throughout this blog as a power of attorney), a grantor can give the authority to one or more people to manage their money and property on their behalf. In Ontario, the person appointed in this role is referred to as an “attorney” (this is not a reference to the grantor’s lawyer). Unless the grantor limits their attorney’s powers, their attorney for property has the power to do anything on their behalf with respect to their property that they could do if capable, except make a will.

Given the power that is being granted to the attorney for property and the potential for misuse and abuse, there are a number of considerations to balance protecting the grantor and practicality, one of which is when the power of attorney should come into effect.

Under the Substitute Decisions Act, 1992 (Ontario) (the “SDA”), the grantor can specify when their power of attorney comes into effect. It can be effective immediately upon execution or it can “spring” into effect upon a specified date or when a specified contingency happens, for example, if the grantor becomes incapable of managing property.

There are practical reasons to have a power of attorney come into effect immediately.

There can be difficulties in establishing to third parties, such as banks and other financial institutions, that a person is incapable of managing their own affairs and that a power of attorney is in effect. A third party can act more efficiently on a power of attorney that is effective on the face of the document without the need for evidence of the grantor’s incapacity, which may result in delays confirming the attorney’s authority.

Additionally, a grantor may wish for their attorney for property to assist with managing their property while the grantor is still capable, for example, if the grantor is personally unable to attend to matters because they are unavailable or physically unable to.

However, there may be situations where the grantor intends that their power of attorney may only be exercised if and when they are unable to manage their affairs. This provides the grantor with the assurance that their power of attorney can only be used when they become incompetent.

Defining triggering events carefully

Care must be taken by the drafting lawyer to define the triggering event for the power of attorney to “spring” into effect. The SDA provides the method for determining whether the grantor has become incapable of managing property if the document does not set it out.

It is generally not common practice in Ontario to prepare “springing” powers of attorney. There are a number of reasons, including the practical issues in dealing with third parties and substantiating that the power of attorney has become effective and the challenges associated with defining when the grantor has become incapable of managing property.

In Ontario, it is common practice for grantors to execute a power of attorney which is effective immediately, which can be held by a trusted third party (often the law firm which prepares it) with a direction providing the terms upon which it may be released to the grantor or to the attorney for property.

The direction can provide that the third party may release the power of attorney to the grantor if they are mentally capable or if the grantor is mentally incapable, upon the request of the grantor’s attorney and receipt of sufficient evidence of incapacity.

The evidence may be, for example, the written opinion of the grantor’s family physician or attending physician or a capacity assessor stating that the grantor does not have the mental capacity to manage their financial affairs.

It’s important to build in protective features and make sure the proper checks and balances are in place. The third party holding the power of attorney effectively becomes the “gatekeeper” of the key to the grantor’s money and property. This approach strikes a balance of protecting the grantor against the improper exercise of the attorney’s powers and the ability to utilize the power of attorney for property in appropriate circumstances in an efficient manner.

Marly Peikes is a partner at O’Sullivan Estate Lawyers. Her practice includes all aspects of estate and trust planning, estate administration and estate dispute resolution. Marly focuses on assisting clients in organizing their financial affairs during their lifetime through creative estate planning strategies which balance each client’s unique needs with corresponding estate administration tax and income tax considerations, all while ensuring that each client’s objectives are achieved and optimized. This article originally appeared in the O’Sullivan Estate Lawyers blog. Used with permission.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. It is not intended to provide specific personalized advice on any individual situation, including, without limitation, investment, financial, legal, accounting or tax advice. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your particular circumstances.