Types of Powers of Attorney

There are four common types of powers of attorney:

A  General POA is when authority is granted at the time without having  specific limitations. The person is empowered to act on their behalf as  long as the grantor is of sound mind and body, but not thereafter. 

A  Limited POA, as the name suggests, has limitations which may be for a  specific period of time, a specific financial institution or even a  specific transaction. 

A  Springing POA is the opposite of a General POA in that it ‘springs’  into effect when the grantor is no longer of sound mind and body.

This  can be among the most challenging due to the burden of proof and the  unwillingness of many in the medical profession to bear the risk of  signing off for such authority. 

Lastly,  a Continuing POA comes into effect on signing and ‘continues’ beyond  incapacity, making it one of the easiest to ensure is and remains to be  in force.

On the left is a graphic summary of the four common types of power of attorney. 

It’s extremely important for personal fiduciaries to keep track of everything, and by ‘everything’, we mean every last thing. This was once called having proper documentation, but we now keep track of many things without any documents at all. 

Another antiquated expression was to ‘always maintain a paper trail’! Today there are far more methods of keeping track which make the task vastly easier. But it still has to be done!

Fiduciaries  must keep track of the flow of all money, meaning income and outflow,  receipts for every expenditure and so forth. This can be done with  electronic bank statements, financial apps, photographs and even,  sometimes, little slips of paper!

In  the case of estates, for example, executors should create a digital  library of property, such as the contents of the home. It’s possible  that, years later, an heir may ask what happened to a set of chinaware  they were promised. Having a digital library avoids argument by simply  showing there was no chinaware in the estate and so it must have been  sold or gifted previously. 

Something  else to keep track of is a record which doesn’t appear to be of value  until you’re sitting in court trying to remember a conversation. Every  meeting and phone call should be kept track of, including who attended  or participated, where it was and when it was, right down to the time of  day it began and ended. One never knows when questions will arise and  may be years after the fact, so keep track! 

Unless otherwise stipulated in the power of  attorney document or the will, personal fiduciaries are permitted to  claim compensation if they wish. If these documents however specify that  no compensation may be claimed, then none can. 

Each  jurisdiction provides guidance as to the maximum fees that may be  charged, though fiduciaries should consider if their fees are  commiserate with the work performed to be fair and reasonable. If, for  example, all services were outsourced to professionals, it would be  challenging to defend charging maximum fees, essentially double-billing,  simply for having made phone calls. 

The  actual amount that can be charged varies, but the format is generally  consistent. It is comprised of a percentage amount charged on income or  assets gathered, an equal amount on expenses or amounts distributed and  an amount levied on the assets managed as a maintenance fee. The first  two are generally 2% – 3% each and the third is usually 0.4% - 0.6%. 

Larger  estates will often see fees scaled as the amount rises. In some cases,  fees aren’t legislated, and it is left to the probate court to determine  what is deemed reasonable. 

Fiduciary  compensation is payment for work, and as such, fully taxable as income.  Bequests ‘in lieu of fees’, area also deemed income. In the case of  estates where the executor / executrix is the sole beneficiary, it would  obviously not be advantageous to take a fee and incur taxes  unnecessarily.  

No fiduciary is appointed with the expectation they will be able to do everything themselves. They are appointed because the person appointing them (the ‘testator’ in the case of a will, ‘settlor’ in the case of a trust, or power of attorney) believed they will be able to ‘step into their shoes’ and conduct their affairs as they would have, had they been able. 

In all likelihood, this person would have used numerous professional advisors and therefore, so too may the fiduciary.

Further to the above, unless the fiduciary is a professional investment advisor , it’s important to seek professional investment advice, particularly about making distributions, and balancing the needs of various beneficiaries.

Tax returns, particularly estate tax returns, should be outsourced to a capable accountant. In the case of estates, there are often multiple returns that should be considered, and frequently they may need to re-file previous returns. 

In the case of real estate, professional appraisals are strongly encouraged, not only for accuracy in tax reporting but also for defending distribution decisions to less informed beneficiaries. . 

As for the sale of real estate property, the fiduciary will want a professional realtor with expertise in downsizing and estate sales. While most realtors will focus only on the property, specialists will manage the bigger picture, looking after all the logistics, right down to household contents. Failure to use the right professionals can lead to a lot of excessive work.

For any task that is beyond a fiduciary’s capability and / or comfort level, it makes more sense to leave it to the professionals and avoid the personal risk.  

There was a time when this topic was limited to whether something should be communicated over the phone or in person. Those days are long gone! Today we have so many forms of digital communication it’s very important to give this serious consideration. That said, however, the thinking behind the decision hasn’t changed much at all. 

The factors to consider are:

· With whom do you want to communicate?

· How important or weighty is the topic?

· How likely is it the person will receive the communication?

· How timely will they receive the information given their schedule?

· How secure is the method of communicating?

Here are some examples of how these factors can affect communications. You wouldn’t:

· Text or email someone too elderly to be able to read them

· Text someone to tell them that their father had just died

· Email something important that might lodge in their junk folder

· Email something urgent when someone is on holidays

· Email confidential financial information without prior consent

In every communication, fiduciaries should pause and consider if the method they are contemplating is logical, sensitive, appropriate, timely and safe.

While many consider financial management pertains only to investments, this is not the case. Fiduciaries are responsible for both assets and liabilities (debts), and this is an area far more people get into trouble with than investments, particularly when one considers that taxes are also liabilities, and the tax collectors are creditors!

Creditors (those to whom money is owed) must be treated fairly, include giving those with a claim on the estate a reasonable level of notice (‘Notice to Creditors’) over a realistic period of time. 

It is customary for the Canada Revenue Agency to issue clearance certificates when they are satisfied that all taxes have been paid. Once the executor has this in hand, it is generally safe to commence distribution of funds. While they may revisit the estate, find errors and require additional taxes be paid, the issuance of this certificate usually negates any liability on behalf of the executor. 

If obtaining the clearance certificate is anticipated to take an unreasonable period of time, the executor / executrix may want to advance a portion of the estate while ensuring they hold back an amount somewhat more than the anticipated taxes and any remaining debts. 

In most cases, it’s suggested advertisements be filed in the Legal Notices section of a widely read newspaper in the area where the deceased lived, worked, regularly vacationed, or otherwise owned property.  In other words, anywhere where the decedent may reasonably have been thought to have incurred debt. 

From a fiduciary perspective, the key is to avoid any notion that the executor was less than fully forthcoming about all debts owed.

Honesty  – Although the Will provides direction, a dishonest person can still  find considerable latitude with the truth and may misinterpret your  intention in ways they find most convenient or beneficial.

Ethical  – An ethical person will do the right thing even when they can get away  with doing the wrong thing. They have a moral compass that guides them  when there are no other rules or guidelines.

Organized  – Being an executor involves a lot of paperwork, documentation, dates  and follow-up. A disorganized executor is most likely to get into  trouble with creditors, heirs or other third parties who may choose to  litigate.

Available – Being an  executor is like having a part time job for one to three years and even  longer in some cases. They must have time available. When thinking about  who to appoint, consider where they spend their time now. Will they  have to give up coaching soccer or teaching piano?

Financially  Literate – Estates have become a lot more complicated in recent years  and while the successful executor can outsource some of their duties,  such as the estate tax returns, they should know a little about assets,  debts and the basics of taxation.

Impartial  – Executors are tasked to ‘act with an even hand’, meaning they treat  people equally and fairly. This doesn’t mean contravening the Will, but  rather that in following the Will they use good judgment and all the  heirs feel they were treated fairly.

Diligent  – When executing a Will, as in anything, things don’t always go  smoothly and follow-up and persistence are necessary. Your executor  needs to be diligent in holding people accountable for the things they  need to do.

Good Communication –  The surest way into a courtroom is failing to communicate effectively  and timely with all parties affected by the estate. Left unchecked and  uninformed, emotions can get out of hand very quickly.

Cool-Headed  – When everyone else is losing their minds, the executor needs to keep  theirs! The cool-headed executor can calm people down, share the facts,  and get to the bottom of the matter promptly and effectively.

Strong-Willed  – Sometimes, people try to get away with things they shouldn’t, such as  making up debts owed, or forgetting assets that were borrowed and never  returned. A strong-willed executor will hold all parties to account.