I recently attended a course on the responsibilities of being an Alternate Decision Maker when someone appoints you in their Power of Attorney document. I thought I knew all about it, but I sure didn’t know all the important details. I’m really glad I went.
First, as I am likely to become the Attorney for one or both of my parents as they continue to age in their 90s. But I’m very happy I attended so I can share my knowledge with you, my loyal readers, and my clients. There is a guiding principle when acting as the Alternate Decision Maker: To act honestly, in good faith, and in the best interests of the incapacitated individual, using the assets for his or her benefit only.
The first thing I learned is there has to be a specific point in time when you actually take over the finances of the person and actually act as their attorney. Sometimes this is very clear – when someone suffers a stroke and becomes incapacitated. But often it’s not as clear cut. It’s up to you as the Attorney to document when you actually take over the finances. Sometimes you can get a doctor’s certification that the person is no longer mentally capable of handling their own affairs. There is often a grey area before this time period. You may be “helping” them with writing out cheques and keeping track of things, but you are still not acting as the official attorney. Yet.
Once you do become the Attorney there are some very important dos and don’ts that I learned. Here are some important ones.
First you now need to keep records. Yes you must account for all financial transactions including cash (best to avoid cash transactions if you can). And you may need to provide this accounting to someone else once a year. (I’m starting to see these clauses in some newer well worded Powers of Attorney documents.) Even if the document doesn’t state it, assume you will have to eventually and it’s easier to record everything each month. Even if you just write notations on the bank statements each month what every deposit and payment is for. If you are not the executor for the individual, the executor may ask for this information when the individual dies. Be prepared!
The next don’t was one I had no idea about. No more gifting. Once you are acting as the official Attorney, you can no longer give money away. To you and your siblings, or to charity. Your responsibility is to retain all assets. Remember the guiding principle: ‘in the best interests of the individual’. No ‘pre-inheritance payouts’. Even if there is consensus by all the children (the eventual beneficiaries) there is no more gifting.
You cannot quit. Once you become the official Attorney, you cannot quit or change your mind. Or you will need to get court approval first.
Confidentiality is now a must. No more sharing information. Even with other family members. Only the one person you are held accountable to will get financial information from you once a year.
All assets must be insured. Your parent may not have had house insurance or tenant’s insurance before. But now you have to. You are obligated to protect all assets.
Secure all assets including jewelry and other valuable items. Inventory all assets and debts. You need to start with an “opening inventory” of all the assets and debt when you took over.
Cash can only be in the bank. No more cash lying around. And investments must be conservative. If the individual had some “risky” investments (small cap stocks, penny stocks, oil and gas growth companies), you must as soon as possible change these to more conservative investments.
Credit cards must be cancelled. You or the individual can no longer use their credit card. Cancel the bank card. Arrange for direct deposits.
No more free rent. Say one of the children or grandchildren were living with the individual rent free, as the attorney you can no longer allow this. You must charge reasonable rent, or ask them to leave. Ensure income taxes are up to date. Give Canada Revenue Agency a notarized copy of the Power of Attorney so you can deal with them as the legal representative.
There can no longer be any changes to the estate plan. No changes to the Will, no changes to beneficiaries, no transferring money to a joint account.
Now if you are contemplating your own Power of Attorney, you can include clauses that allow for actions that are otherwise prohibited: support for disabled family member, allow for gifts to charities, allow for pre-inheritance by children, and allow for gifts to reduce US Estate taxes. But if these clauses are not in there, the actions are indeed prohibited.
Compensation should be indicated in the Power of Attorney form. And normally it is approved by the individual receiving the accounts, the individual you are accountable to (often another sibling). And the compensation you receive is considered taxable income.
At my recent Estate and Funeral Planning seminar, my guest lawyer, Jim Henderson, opened his presentation with “the Power of Attorney document is more important than a Will”. And he is right. We do have provincial laws that determine who gets your assets when you die. And it’s likely what you are contemplating for your Will: spouse then children. So if you don’t have a Will, it’s likely your assets will go to who you want them to anyway. May take a bit longer and may cost a bit more in lawyer fees, but your assets will be distributed accordingly.
So if you go to a lawyer’s office thinking you only need to get your Will done, maybe you should get your Power of Attorney document in place first. And make sure you name an alternate in case the first choice is unable or unwilling or passes away.
My lawyer friend, Jim Henderson, left us with a great tip on where and how to keep your important papers: “get a fire proof lock-box, put your Wills and Power of Attorney and other important documents in there. Do not lock it. Throw away the key!” It does not need to be locked: thieves don’t want your papers, but if it’s locked, they may take the box!
In an upcoming article, I’ll be sharing information about “mirror” or “mutual” Wills that are very important for those in second marriages or common law relationships. Stay tuned!
Anni Markmann is a Tax Professional and owner of Ste Anne Tax Service. She lives, works, and volunteers in our community. Contact her at 204-422-6631, email@example.com or 36 Dawson Road in Ste Anne.