Effective estate plans in Alberta generally include three interdependent legal documents:
- A Will – communicates how you want your property and assets to be distributed after your death;
- A Personal Directive – gives an individual (know as an agent) authority to make personal, non-financial decisions on your behalf should you ever lose mental capacity (suggest inserting link to Personal Directive blog post); and
- An Enduring Power of Attorney – gives an individual (called an attorney) the authority to make decisions about your financial affairs and property interests should you ever lose the ability to make these decisions for yourself.
This will provide you with a general overview of an Enduring Power of Attorney (“EPA”).
What is an Enduring Power of Attorney?
The first step in understanding an EPA is to differentiate between a Power of Attorney and an Enduring Power of Attorney.
At their most basic levels, both Powers of Attorney and Enduring Powers of Attorney are legal documents where you (the ‘donor’) give someone else (called an ‘attorney’) the authority to manage your financial affairs and property interests while you are still alive. It is worth noting that your attorney can be anyone; they do not have to be a lawyer.
The main difference between a Power of Attorney and an Enduring Power of Attorney is found in the word ‘enduring.’ Most importantly:
- Power of Attorney – is a legal document that gives an attorney (or attorneys) authority over some or all of your financial interests while you are alive and mentally capable of managing your own affairs. Put another way, a Power of Attorney ends as soon as you (the donor) lose mental capacity.
People typically use a Power of Attorney to delegate decisions over their financial affairs or property interests while they are travelling or are unable to complete a specific transaction.
- Enduring Power of Attorney – is a legal document that enables your attorney to continue acting on your behalf if you become mentally incapable of managing your own financial interests.
In other words, an EPA remains legally valid and in effect after you lose capacity.
Types of Enduring Power of Attorney
EPAs for the purpose of estate planning can be grouped into two categories:
- Immediately Effective EPA – this type of EPA is valid and in effect upon signing, and remains valid and in effect after you lose capacity. In other words, your attorney can make financial decisions on your behalf immediately upon signing, and this authority continues after you lose capacity.
- Springing EPA – this type of EPA only takes effect upon:
- a specific date; or
- the occurrence of a specific contingency.
A Springing EPA is legally valid at the time of execution, but does not come into effect until something specific occurs. This means that your attorney cannot make any decisions about your financial affairs until a set date or event.
In the context of estate planning, the most common EPAs are Springing EPAs triggered when the donor loses the capacity to manage their own financial affairs and property interests.
Who Determines When a Springing EPA Comes into Effect?
The overall purpose of an EPA is to give someone the ability to make decisions about your financial interests while you are still alive. As such, knowing when an EPA comes into effect (and when an attorney can make decisions on your behalf) is a key component of estate planning.
As briefly described, you may want your EPA to come into effect on a specific date in the future or on the occurrence of a specific contingency. The question then becomes “Who decides when this date or contingency has occurred?”
A Springing EPA can come into effect in one of two ways:
- your EPA can name a person (or persons) responsible for preparing a written declaration stating the specified contingency has occurred and the EPA is in effect; or
- if the contingency is the mental incapacity of the donor, and
- the EPA does not name someone to make the decision; or
- a named person is unwilling or unable to make a determination of incapacity;
then the EPA comes into effect when two medical practitioners declare in writing that you have lost capacity.
What Powers Do an Attorney Acting Under an EPA Have?
When an EPA comes into effect, the powers your attorney has to manage your financial affairs are governed by your instructions and legislation (the Powers of Attorney Act, RSA 2000 Ch P-20).
As briefly discussed, the overall purpose of an EPA is to ensure your interests are protected if you lose the capacity to manage your own financial affairs. To this end, an EPA gives you significant control over what your attorney(s) can and cannot do.
General Authority – On the one hand, you can give an attorney broad power over all of your financial affairs. If you do not specifically limit an attorney’s power, an EPA gives them the right to do anything with your property and finances that you could lawfully do if you still had capacity. Key examples include using funds from your personal bank account to pay bills, buying and selling property, or managing investments.
Specific or Limited Authority – On the other hand, you can choose to limit your attorney’s authority to specific financial interests. For example, you can restrict what an attorney can and cannot do with a specific financial or property interest.
Legal Obligations – Regardless of whether an EPA gives an attorney specific or broad-based authority, the actions of an attorney are always governed by clear legal obligations. Most importantly, an attorney:
- cannot use your property to benefit anyone other than you unless:
- you explicitly give this authority in the EPA; or
- the attorney is your spouse, Adult Interdependent Partner, or dependent child;
- cannot exceed the authority provided in the EPA;
- cannot make a will on your behalf or make any testamentary decisions on your behalf; and
- cannot recuse their role as attorney without consent of the court.
Why is an EPA Important?
Like all estate planning documents, the purpose of an EPA is to protect your interests and provide clarity for your loved ones.
At its most basic, an EPA protects your financial affairs and property interests by giving you:
- control over who can make decisions about your financial interests;
- influence over how these decisions are made; and
- legal accountability for those in charge of your finances.
Most importantly, if you lose capacity and do not have a legally valid EPA, a family member or other interested party must apply to the Court for an order appointing them as a trustee under the Adult Guardianship and Trusteeship Act, SA 2008, C A-4.2.
Beyond the amount of time and money it takes to get an order for trusteeship, this process can:
- delay important decisions regarding your financial interests; and
- reduce certainty over who makes decisions about your affairs and how these decisions are made.
Finally, uncertainty over your interests and wishes can lead to expensive and emotionally challenging disputes between family members over what they think is in your best interest.
Why is it Important to Consult a Lawyer when Designing or Updating an EPA?
Although an EPA does not require a regulated form, an estate lawyer can help ensure your EPA is legally valid and tailored to your specific needs, circumstances, and preferences.
1. Legal Validity – Anyone can write down what they would like to happen with their financial affairs should they ever lose capacity. However, these instructions are not legally binding and do not give anyone the authority needed to make decisions about your personal financial interests.
Simply put, any instructions regarding how your financial interests are managed after you lose capacity are not legally valid unless they meet the formal and substantive requirements of an EPA. Without a valid EPA in place, no one will be able to access or make decisions about your personal accounts, investments, or property without first becoming your trustee.
2. Relevance – Beyond ensuring your EPA is legally valid, estate counsel will help translate your unique needs and priorities into an effective plan to protect your financial interests.
Most importantly, an estate lawyer can help you better understand and prioritize an EPA to reflect your needs and priorities. Key factors to consider include:
- the type of EPA (i.e. immediate or springing);
- number of attorneys;
- if multiple attorneys, understanding that the law requires them to act unanimously;
- ideal qualities of an attorney;
- substitute attorneys in the event one is unable or unwilling to act;
- whether the EPA grants broad or limited authority;
- additional documents an attorney may need to deal with a bank or land titles; and
- how to update an EPA to ensure it reflects any changes in your priorities and financial circumstances.
How can Vogel LLP Support your Planning?
Effective estate planning involves more than just a will. It is important to consider who will make decisions about your financial affairs if you lose the ability to make these decisions for yourself. The overall goal of an estate plan is to protect your interests while avoiding potential confusion and disputes. The estate team at Vogel LLP is uniquely positioned to help you design or update an Enduring Power of Attorney to protect your interests and goals for the future.