Picking power of attorney key to financial peace of mind

About a year ago we wrote about the importance of maintaining an up-to-date will.  Just as important as a will for many people is establishing the appropriate power of attorney document.  Establishing these two important facets in your life ensure your estate goals are accomplished.

A power of attorney provides a person (referred to as an “attorney”) the power to make decisions on your behalf while you are alive.  Power of attorney documents range from those that provide limited or specific powers to those with a more liberal range of powers.  Obtaining an understanding of the different types of power of attorney documents is the first step.  We recommend that people speak with their lawyer regarding a legal power of attorney when they are updating their will, if not sooner.  The remainder of this column deals specifically with power of attorney options at a financial institution as opposed to a legal power of attorney document that a lawyer would draw up.

Why a power of attorney?

Accidents may occur unexpectedly.  Those fortunate enough to avoid health problems at a younger age may become mentally and/or physically incapacitated later in life.  Do you know what would happen to you and your family if you became incapacitated?  Would you prefer the Public Trustee manage your affairs or a pre-determined individual you select?  Planning ahead and selecting a power of attorney will ensure important decisions will continue to be made without unnecessary disruption.

Financial institutions

Many financial institutions provide individuals the ability to designate a power of attorney on their account.  This specific type of power of attorney would not cover other financial affairs of the individual and should not be confused with a legal power of attorney.   When establishing this type of power of attorney document at financial institutions people still need to make the decision between “limited” or “full.”  A limited power of attorney provides the attorney the right to make buy and sell decisions but not the right to withdraw funds from the investment accounts.  A full power of attorney provides the ability to make all types of decisions, including withdrawal of funds.

Don’t wait

Provided people know someone that they are comfortable naming as their attorney, we recommend establishing either limited or full power of attorney at the time the investment account is set up.  This is often the easiest time for you to set up the attorney and there is no doubt as to your wishes.  If you have an investment account and an attorney is not currently named then it is possible to add one or more attorneys.  When you add the attorney at the account opening stage or later the financial institution requires forms to be signed and witnessed.  Along with these forms, most financial institutions now require additional information about your attorney.  The good news is that this is free to set up.  A word of caution for those individuals who choose to wait – it is too late after an owner becomes incapacitated and may or may not be possible if the owner’s mental abilities are questioned.   It is also important to highlight that an individual may cancel a power of attorney at any time provided clear written instructions are provided.

Other benefits

Most of us may feel that the likelihood of becoming incapacitated in the near future is remote.  However, many people draw up a financial power of attorney document for several reasons, including:

  • People who travel or work in areas where communication is an issue.
  • Individuals whose lifestyle is not conducive to timely contact.
  • Assigning an individual who is more familiar with financial matters.

If an account owner would like us to speak with their spouse or another individual regarding their investment accounts then they must have the appropriate power of attorney documentation completed.

Who to name?

It is important to remember that, although the individual is referred to as an “attorney,” it is not necessary that the individual be a lawyer.  Common choices amongst individuals with children are to name a spouse or an adult child.  For single or widowed individuals naming an individual you fully trust is a logical first choice.  It is important the individual named understands their powers and are able and willing to make appropriate decisions regarding the accounts if and when required.

Seeking legal advice

Although it is relatively easy to establish a power of attorney at a financial institution and the cost is usually free, we encourage individuals to carefully consider their choice of attorney.  We also feel these types of decisions are best made in conjunction with discussions with your professional advisors.  Your lawyer will be able to provide you a complete understanding of the limitations of a financial power of attorney and the benefits of drawing up a legal power of attorney.  In many situations the power of attorney document is as important as a will.

It is important to note that power of attorney documents cease at death at which point your will takes over.  To ensure your estate goals are met it is important to ensure that you have two properly executed legal documents – a will and power of attorney.