The common law of agency, broadly speaking, constitute the powers of attorney. This relationship of an agency is established when one person, principal, donor or grantor authorizes another person, agent or attorney to act as his or her agent. An agency relationship used to terminate in common law, when the donor became mentally incapable. As this common law principle seriously limited the practical utility of powers of attorney with respect to property matters, in the late 1970s, the Ontario legislature provided a statutory override. This provision allowed the authority under a power of attorney for property to continue despite the donor’s loss of mental capacity, when the donor declared that intention in the document evidencing the attorney’s authority.
Subsequently, after a lengthy and detailed review of the law governing powers of attorney in Ontario, the government created a comprehensive statutory framework, known as the Substitute Decisions Act (SDA), governing substitute decision-making, both with respect to property and with respect to personal care. In regards to property matters, the new statute overrode some common law agency principles and supplemented them with new principles. An entirely new framework permitting a person to appoint an attorney to make decisions regarding the appointor’s personal care was introduced.
Power of attorney? What for?
Acting as a fiduciary, the attorney appointed by a power of attorney, therefore, has to account, has to use reasonable care in acting, is not to act in conflict with the grantor’s interests and is not to make secret profits.
While capable, the grantor exercises his or her own choice by signing a power of attorney so as to get an attorney to act on his or her behalf in the event of incapacity. It also works when the grantor, otherwise capable, is simply not there when important decisions must be made or actions taken on a timely basis. If there is no power of attorney in place at the time of incapacity, the process of installing a substitute decision-maker is more time-consuming and more costly. Also, there is no way of knowing in advance the identity of the person ultimately placed in that role.
Range of authority
The SDA specifies that a grantor can authorize the attorney under a continuing power of attorney to do anything in respect of property that the grantor, if capable, could do, other than make a will for the grantor. It is for the grantor, however, to choose to limit the range of the authority of the attorney by express provisions in the continuing power of attorney. For instance, the authority to manage the grantor’s property could be restricted to dealing only with some of the grantor’s property. Or, the authority could be intended not to commence before a specified time or event and/or not to continue beyond a specified time or event. A common example of this type of limitation is a declaration that the continuing power of attorney does not become effective until and when the grantor becomes mentally incapable. To ensure that there is no ambiguity or equivocation, great care should be taken so that any limitation expressed in terms of an event is very clear and specific enough. Should the meaning of the condition or restriction be uncertain, third parties to whom it would be presented could refuse to recognize the authority. Likewise, should the occurrence of incapacity of the grantor be the trigger for the effectiveness of the authority, some mechanism to establish incapacity is to be spelt out in the document. It is possible that the grantor wants the reassurance of additional support/surety, like a letter from his or her family physician attesting to the grantor’s incapacity. If no test for incapacity is specified in the document, the SDA stipulates an assessment of the grantor by an assessor, a person accredited by the province to conduct assessments of capacity, or the issuance of a certificate in respect of the grantor under the Mental Health Act.
Expenditures, gifts, and loans
The fiduciary powers vested in the attorney obligates him or her to act solely in the grantor’s interests. The traditional advice to an attorney acting for an incapable grantor is to limit expenditure to those reasonably necessary for the grantor’s own support, education, and care, except as required by contractual obligation or court order, or as set out in the document itself. The SDA states unequivocally that attorneys may spend the grantor’s funds for the support, education, and care of the grantor’s dependants and for expenditures necessary to satisfy the grantor’s other legal obligations within certain guiding principles, such as the value of the grantor’s property, the grantor’s accustomed standard of living and those of the grantor’s dependants, and the nature of the other legal obligations the grantor could possibly have. All the time, and particularly when money is tight, the primary concern must be for the grantor first and then for the dependants, with other legal obligations suffering the shortfall. If this is regarded as a standard, then the authority given for an attorney to make gifts or loans to the grantor’s friends and relatives from the grantor’s property and to make charitable gifts (SDA) appears unusual and potentially open to abuse. Under the SDA, such expenditures should be considered to be for the incapable person’s benefit. At the same time, limits have been imposed by the SDA to temper the largesse of an attorney. If the grantor’s property is unduly depleted, it would become insufficient to satisfy the support, education, and care of the grantor himself or herself. Therefore, gifts or loans to the grantor’s friends or relatives can be made only if the attorney has reason to believe, based on the grantor’s intentions expressed before becoming incapable, that the grantor would ordinarily make them if capable. As specific authority can also be given in the power of attorney document, charitable gifts by the attorney are permitted only when authorized in the document or if there is evidence of similar gifts made by the grantor while capable. Nevertheless, charitable gifts are limited under such circumstances to 20% of the grantor’s income in the year or the maximum given in the power of attorney document, whichever is less. Those limits can only be exceeded by obtaining a court order according to SDA. Then, gifts or loans to friends or relatives or charitable gifts are prohibited if the incapable person expresses a wish to the contrary, which would thus impose an obligation on the attorney to ask the grantor before making any such gift or loan, assuming the grantor has the capacity to comprehend such an inquiry.
It is important to remember that the attorney does not have the authority to make a will for the grantor. In view of this restriction, any attempt to enter into a large scale gifting program for the grantor during the grantor’s lifetime would be an attempted circumvention of the will-making prohibition, and, therefore, subject to censure, unless the grantor was in the midst of such an inter vivos gifting plan prior to incapacity. It has been made clear in Banton v. Banton that it is improper for an attorney to attempt to interfere with the testamentary freedom of the grantor by transferring assets to an inter vivos trust that is intended to function as a will substitute.
When deciding on how to deal with the property of a Grantor or incapable person for which you have Power of Attorney over, contact the Lawyers at Levy Zavet PC. Ask Levy Zavet PC how best to protect your interests and intentions when drafting your Power of Attorney over your Property.