We all want to know our financial affairs are in good order, even when circumstances mean we can no longer manage them ourselves without assistance. Joint accounts and powers of attorney are ways you can allow other people to access your money.
Once you understand how both joint accounts and powers of attorney work, you will have a much better perspective on whether or not you want to add them to your financial planning toolkit. This article refers to powers of attorney for finances and property. There are also powers of attorney designed to enable your attorney to make decisions for you on your health and personal care. We won't be dealing with that type of directive here, but it is very important that you work together with your doctor, lawyer or other trusted advisor to determine if this is something you want to prepare for your life plan.
What is a power of attorney?
A power of attorney is a legal document in which you assign one or more individuals, known as an "attorney," the authority to act on your behalf regarding financial or legal matters for property. Don't let the term "attorney" confuse you. While you may choose a lawyer for this role, it's more often someone close to you: a friend or family member, or a corporate attorney such as a trust company who will act with your best interests in mind. You can give them the authority to act on all your property and financial matters, or it can be limited to specific functions, such as managing your investments. In short, the power of attorney is the document and the attorney is the person you appoint to act in your place.
Are all powers of attorney the same?
No, not all powers of attorney are the same and your document can be customized to reflect your needs and updated to reflect changes in your personal situation. For example, unless specifically stated, your attorney is no longer authorized to act on your behalf should you become mentally unable to manage your property. But if you elect to create an "enduring" or "continuing" power of attorney, your attorney can continue to act on your behalf even if you become mentally incapable. An enduring power of attorney can take effect as soon as you sign it, and continue should you experience mental incapacity. Alternatively, you could create a "springing" power of attorney that takes effect only upon a specific contingency, for example, should your family doctor determine that you are no longer mentally able to manage your own finances.
In Quebec, a power of attorney is also known as a mandate and an attorney is also known as a mandatary. With a mandate you can include provisions empowering your mandatary to represent you in the event of your incapacity to administer your property. However, in that case the mandatary must request the mandate be confirmed in a court of law, a process known as homologation.
Many people who suffer from disability and chronic illness choose to have an enduring power of attorney, as it gives them security in knowing that someone will be able to manage matters should their condition unexpectedly worsen.