Considerations for attorneys acting under an enduring powers of attorney
A power of attorney is a legal document which creates an agency relationship between the person appointing (the "principal" or "donor") and the appointee (the "agent" or "attorney"). It is a basic principle of agency law that an agent may only take steps authorized by the principal. Thus, where the principal becomes unable to direct the attorney, either because of physical or mental incapacity, the common law does not permit the attorney to continue to act under the terms of the power of attorney.
There is an important statutory exception to this rule: the attorney may continue to act if the power of attorney authorizes the attorney to act when the principal is incapable. This is known as an "enduring power of attorney" and is a useful tool for an adult to plan for substitute decision making in the event of a future incapacity.
On September 1, 2011, British Columbia will have a significantly revised Power of Attorney Act (the "Act") to govern enduring powers of attorney. While parts of the Act simply "codify" accepted laws and practices developed by the courts, other parts are new. The provisions in the Act will apply to all enduring powers of attorney, but there are "transitional" provisions which recognize enduring powers of attorney made before September 1, 2011. In other words, it will not necessary to replace existing enduring powers of attorney (although it may be wise to update them, if possible).
It is important for both the person considering an enduring power of attorney (referred to in the statute as the "adult") and the attorney to understand how the Act affects the creation and use of an enduring power of attorney.
This article provides general information only. We recommend that the reader seek legal advice from a knowledgeable lawyer before making an enduring power of attorney, and when questions arise during the exercise of authority given in an enduring power of attorney.
Considerations in Acting as an Attorney
This article discusses considerations for an individual asked to be an attorney and for attorneys who are now acting under an enduring power of attorney. Click here for a discussion of considerations for an adult planning for an enduring power of attorney.
Authority of the Attorney
The adult may give the attorney the authority to do anything that the adult may lawfully do by an agent in relation to the adult's financial affairs.
For many years, health care providers looked to the attorney to make personal and health care decisions, but the law is clear that these must be addressed in a representation agreement or advance directive. (Link here for a discussion of these planning tools). It is important to remember that the authority in an enduring power of attorney is limited to the adult's financial affairs (which include the adult's business and property, and the conduct of legal affairs).
Duties of Attorney
The new Act sets out a number of general duties of an attorney. The attorney must:
- act honestly and in good faith;
- exercise the care, diligence and skill of a reasonably prudent person;
- act within the authority given in the enduring power of attorney and under any enactment;
- keep records and produce the prescribed records for inspection and copying at the request of the adult; and
- act in the adult's best interests, taking into account the adult's current wishes, known beliefs and values, and any directions to the attorney set out in the enduring power of attorney.
There is also a list of specific duties set out in the Act which include:
- to the extent reasonable, give priority when managing the adult's financial affairs to meeting the personal care and health care needs of the adult;
- unless the enduring power of attorney states otherwise, invest the adult's property only in accordance with the Trustee Act;
- to the extent reasonable, foster the independence of the adult and encourage the adult's involvement in any decision-making that affects the adult;
- not dispose of property that the attorney knows is subject to a specific testamentary gift in the adult's will, except if the disposition is necessary to comply with the attorney's duties;
- to the extent reasonable, keep the adult's personal effects at the disposal of the adult;
- keep the adult's property separate from the attorney's own property (unless it is jointly owned);
The authority to make gifts or loans may be specifically authorized in the enduring power of attorney. Where it is not, an attorney may still make a gift (including charitable gifts) or a loan, if:
- the adult will have sufficient property remaining to meet the personal care and health care needs of the adult and the adult's dependants, and to satisfy the adult's other legal obligations, if any;
- the adult, when capable, made gifts or loans, or charitable gifts, of that nature; and
- the total value of all gifts, loans and charitable gifts in a year is equal to or less than a prescribed value (as of September 1, 2011, $5,000).
The Act permits an attorney to retain the services of a qualified person to assist the attorney in doing anything the adult has authorized the attorney to do. For example, an accountant may be hired to prepare and file tax returns, and a lawyer may be hired to deal with legal issues.
The Act also specifies what an attorney may not do, including making a will or a change to a beneficiary designation (in, for example, a life insurance policy, TFSA, RRSP or RRIF). With respect to the latter, however, the attorney may apply to court to authorize a change or create a new beneficiary designation, in certain circumstances.
The Act provides some protection for an attorney. Provided that he or she is acting in compliance with the attorney's duties, there is no liability for any loss or damage to the adult's financial affairs.
An important restriction on any power of attorney is the inability of an attorney to delegate. The Act permits such delegation provided that the enduring power of attorney authorizes it, or where the delegation relates only to investment matters (provided that the investment delegation is done in accordance with the provisions of the Trustee Act).
Compensation for Attorneys
When considering whether to accept an appointment as an attorney, the matter of compensation should be discussed with the adult.
The Act permits the attorney to be reimbursed for all reasonable expenses properly incurred in acting as the adult's attorney. But compensation can only be claimed if the enduring power of attorney expressly authorizes the compensation; and sets the amount or rate.
If the enduring power of attorney is to provide for compensation, the "amount or rate" must be determined. While an "amount" is straightforward, it may be difficult to anticipate: for example, $200 per month may be too little or too much, depending upon the duties of the attorney, the complexity (or lack thereof) of the adult's financial affairs, and the length of time the attorney acts.
The alternate is a "rate". Where the attorney is a professional, his or her hourly rate may be the appropriate compensation. For individuals, choosing an hourly rate (for example, $15 per hour) may be attractive, but consideration should be given to the fact that the enduring power of attorney may not be "activated" for many years, at which time the rate chosen may be inadequate).
It is possible, perhaps likely that the statutory rates for a trustee under the Trustee Act of British Columbia, used as the rate for compensation. These rates are:
- an annual income fee of up to 5% of the income earned; and
- an annual care and management fee of .4%, calculated on the average value of the property.