"If you forget where you left your car keys, that's normal. If you forget what your keys are for, you had better pay attention."
That may be the most useful paragraph I've ever read to help me understand the effect of aging and other factors on cognition and mental functions. This was in a pamphlet produced by the Alzheimer's Society of Manitoba, which is a great source of info and support for people with family members showing potential signs of dementia.
But this is not a health column, so today is about making the proper arrangements before diminished capacity becomes a financial management issue for you.
We have seen the costs and complications that arise when people fail to make proper arrangements for the management of their affairs, in the event they become incapacitated.
The main preparation is to sign a legal document called a power of attorney. In this document, the "donor" -- the person signing the form -- empowers someone else to act as their "attorney." This does not mean "lawyer" in this context; it really means personal representative.
The powers bestowed upon the attorney can be very limited. For example, the document might only allow the attorney to sign documents for a single transaction or to have administrative power over a certain bank account or investment account.
Usually, however, it is in the form of a general power of attorney, which grants broad powers and allows the attorney to transact virtually any business on behalf of the donor.
To be useful in the example of diminished mental capacity, it must also be an "enduring" power of attorney. This means the appointment will survive your incapacity, allowing your attorney to manage your affairs if you lose legal capacity.
Clearly, this is a very powerful appointment, so it is a choice to be made very carefully. You want someone you can trust and who will exercise good judgment.
Often, people will name two attorneys to act jointly, which gives confidence one will look after the other. Alternatively, a licensed trust company can be named as your attorney. The Manitoba Public Trustee can also be named as attorney by people with estates of $250,000 or less.
In Manitoba, the attorney must make an annual financial reporting to the donor's closest relative or a representative named by the donor at the time of signing the form.
There are limits to the powers of the attorney and those are good to understand. The public trustee has a publication on its website called A Legal Information Guide for Seniors, which explains all this as well as information on wills and health-care directives (www.gov.mb.ca/publictrustee).
Many people have said to me, "Oh yes, I've got that taken care of. I named someone as my executor in my will."
Wrong. Your will and your power of attorney are completely separate documents and can never both be effective at the same time. The power of attorney is only valid while you are alive. The powers granted by this document stop when you pass away and your named attorney no longer has any authority over your affairs.
The minute you die, the person named as executor in your will becomes your personal representative. In many cases, this is the same person but even in that example, the role and powers change.
For an in-depth look at this topic, my Free Press colleague John Poyser, a legal specialist in this field, is conducting an "Attorney School" on June 1. It will focus on helping people who are named as attorneys but would also be useful from a donor point of view.
You can get full information by calling The Knowledge Bureau at 1-866-953-4769 (toll-free).
If you are looking at being named as an attorney, this is likely a very good investment.
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.
David Christianson, BA, CFP, R.F.P., TEP, is a financial planner, adviser and vice-president with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.