This article is written by Alicia Mossington, Estate and Trust Consultant with Scotiatrust.

 

A Power of Attorney for Property is a document which allows an individual (grantor) to appoint and authorize a substitute decision maker. In Ontario, the substitute decision maker is referred to as an “attorney.” The named attorney or attorneys typically have a broad scope of power and under section 7(2) of the Substitute Decisions Act (the “SDA”), the Continuing Power of Attorney for Property may authorize the attorney “to do on the grantor’s behalf, anything in respect of property that the grantor could do if capable, except make a Will.” [1]

 

In Ontario, there is a statutory presumption of capacity: a person who is over the age of eighteen, is presumed to be capable of entering into a contract, and a person who is over the age of sixteen is presumed to be capable of giving or refusing consent for their personal care.[2] As previous authors have noted, capacity is situation specific, and the “degree” of capacity required for different types of decision making varies considerably. Apart from the SDA there is also legislation addressing mental capacity in decision making.[3] The SDA provides that:

A person is incapable of managing property if the person is not able to understand information that is relevant to making a decision in the management of his  or her property or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision.[4]

 

Practitioners may draft powers of attorney for property with language confirming that the presentation of the document itself (either original or notarial) by the attorney, is sufficient proof that the named attorney has authority to act, without any need for further investigation.

Questions can arise as to when and if the named attorney(s) can, or should, begin acting under the Continuing Power of Attorney for Property (“CPAP”). There are different approaches to address timing and “activation.”

1. Immediate Activation

If it is the grantors intention that the CPAP be effective immediately, then a specific clause is usually included in the document, so that this intention is clear to any third party who is presented with the Power of Attorney document.

When effective immediately, there can be a risk that the named attorney will begin acting without the grantor’s knowledge or consent. To safeguard against this risk, the CPAP might be retained by the grantor and not released. However, despite being “immediately activated” third parties may still request additional information before relying on or acting on instructions from the attorney for property. For example: financial institutions may request their own version of a limited power of attorney permitting certain types of actions on an account, or might request to speak with the client before relying on the attorney.

 

2. Immediate Activation + Letter of Direction

When it is the grantors intention that the CPAP be effective immediately, the drafting solicitor may retain the original CPAP with a Letter of Direction confirming the circumstances under which it can be released. Similarly, when a trust company is appointed as an attorney for property, they may prefer a Letter of Direction from the client confirming the circumstances under which they are permitted to act.

A corresponding Letter of Direction can be a helpful tool to confirm the grantor’s intentions and provide a mechanism allowing the attorney(s) to commence acting in some circumstances without obtaining a formal capacity assessment. This strategy can offer some risk mitigation and help to avoid lengthy delay in acting.

For example: a Letter of Direction might authorize the solicitor to release the original CPAP and/or the named attorney to commence acting in situations such as where:

(a) the grantor directs in writing;

(b) the solicitor or attorney for property receives medical evidence that the grantor “would benefit” from assistance in managing their finances;

(c) the solicitor or attorney for property is instructed by a person specifically named and authorized by the grantor (for example: the attorney for care or another trusted person); or

(d) assessment from a qualified capacity assessor stating that the grantor is no longer capable of managing their finances.

 

3. Springing

A CPAP is effective immediately on signing unless there is a provision or triggering mechanism in the document stating otherwise. I will refer to a CPAP with a triggering mechanism as a “springing power of attorney.” A “springing” power of attorney is not effective immediately on signing but requires the occurrence of a future event. The criteria for “activation” are often outlined in the document itself, rather than contained in a separate Letter of Direction, however the specific events or evidence required are often similar to those noted above.

If the grantor does not intend for the power to be exercised except on incapacity, it can be helpful to specify the mechanism for determining capacity. When the CPAP is silent, the Substitute Decisions Act provides that:

(3) if the continuing power of attorney provides that it comes into effect when the grantor becomes incapable of managing property but does not provide a method for determining whether that situation has arisen, the power of attorney comes into effect when,

(a) the attorney is notified in the prescribed form by an assessor that the assessor has performed as assessment of the grantor’s capacity and has found that the grantor is incapable of managing property; or

(b) the attorney is notified that a certificate of incapacity has been issued in respect of the grantor under the Mental Health Act, 1996. c. 2, s. 5.[5]

Springing powers of attorney may require that the attorney present evidence to a third party relying on the document that the activation conditions have been met. Such evidence might include an Affidavit from the acting attorney rather than the disclosure of the grantor’s personal medical information.

 

A Power of Attorney for Property is a very powerful and important document. While these documents are widely used, they are not without risk. When granting a power of attorney, it is critical to consider the circumstances under which you want your selected decision maker to begin their duties.

 

Thank you for reading.

 

[1] Substitute Decisions Act, 1992, S.O 1992, c 30, s. 7(2).

[2] ibid at s2.

[3] See for example: Mental Health Act, RSO, c M.7; Health Care Consent Act, SO 1996, c 2, Sched A., and Family Law Act, RSO 1990, c. F.3.

[4] Supra note 1 at s. 6.

[5] ibid at s. 9(3).