Over the last two weeks, we've talked about estate-planning strategies and ways to reduce taxes when a person passes away. We can't ignore these things because, as they say, nothing is certain except death and taxes.
However, another estate-planning issue that is becoming increasingly common is the declining decision-making capacity of our aging population. Each week, more people become unable to manage their own affairs.
This means many of us will find ourselves in a position of decision-maker for elderly parents or other relatives. Hopefully when this happens the preparations have been made, in the form of the older person having signed an enduring power of attorney (PA) naming the right person, before this need arises.
When the "donor" has signed such a form it means another person has been named as "attorney" for them and that attorney can conduct the donor's affairs. "Enduring" means this power will survive the mental or physical infirmity of the donor.
Having an honest, caring and capable person in place is extremely valuable.
However, assuming the responsibility of an attorney is not something to be taken lightly. I recently attended a presentation for advisers put on by the Knowledge Bureau. It included an excellent presentation by Free Press columnist John Poyser, who is a specialist lawyer helping people plan for incapacity and passing on their estates in a tax-effective fashion.
His presentation reminded me of some things I knew, but also taught me a number of additional facts about Manitoba law and specifically the duties of people named under a power of attorney.
Anyone taking on such duties would be wise to prepare a complete accounting of the assets of the donor, including all books and records of property, bank and investment accounts. The attorney has an obligation to show these books to the donor's next of kin once a year, unless some different requirement is written into the PA. Re-creating such records after the fact is usually quite difficult.
Poyser pointed out the overriding rule is all actions taken by the attorney must be exclusively for the benefit of the incapacitated person. While this may seem obvious, the required literal interpretation of that sentence is that this rule is absolute.
Under this provision, the attorney can generally not use the donor's money to make any charitable donations, gifts to relatives or friends or take any similar actions, as they do not provide a net benefit to the donor.
Providing a pre-inheritance is strictly forbidden. Even if the donor has $2 million and is in a nursing home, and all objective opinions say that this money will never be needed, the attorney cannot decide to distribute $500,000 to the children of the donor. Even if all the children agree this is the right thing to do, and they are named as beneficiaries in the donor's will, such an action runs contrary to Manitoba law.
The one exception to this, as I understand it, is to provide support to a person who is legally dependent on the donor, but out of an abundance of caution, such transfers should be limited to the necessities of life.
When writing your power of attorney, you may want to specify that the attorney does have your permission to continue existing donation or gifting patterns, or to provide extra support to certain named individuals. This would authorize such actions on your behalf.
You may also want to specify that you want a high level of care provided to you, and that your attorney should put your needs above any desire to maintain the estate for your heirs.
If you are being named as PA for someone, review the rules and build an understanding of your role and obligations. There can be liability accruing if you fail to take that responsibility seriously and follow the rules.
More information on this topic can be found at www.attorneyschool.ca. This is a source of detailed lessons on this topic.
Hopefully, you will not find yourself in either of those positions, but most of us will. It is much better to be prepared.
Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice. Please consult legal, tax and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, is a financial planner and adviser with Christianson Wealth Advisors, a vice president with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.