What You Ought NOT to Do Using a Power of Attorney

As we reflect on the client situations we have encountered over the past year, we thought it timely to share a few reminders about what NOT to do, especially when a client is acting under a Power of Attorney to manage the affairs of another.

We will use the classic example of “Fred”, who is in the advanced stages of dementia, and is expected to live for a number of years yet. Fred’s wife died long ago, and he has 4 children, one of whom is Susan. Years ago, thankfully, Fred granted Power of Attorney to his daughter Susan. At that time he also made a Will, dividing his assets equally among his 4 children. He lives now in a care facility, but still owns his former residence, which Susan now rents out to tenants, to keep the income stream. She collects the rent and deposits these into Fred’s account.

Susan and her 3 siblings want to “avoid probate” (pay less in probate fees) and to keep Fred’s income low so that he qualifies for his Old Age Security. Of course they are also concerned with ensuring they manage Fred’s money wisely so that it lasts to meet his needs for the rest of his lifetime. The responsibility to manage Fred’s affairs and assets wisely rests solely on Susan, as the Power of Attorney. She is held to the highest legal standard, of a “fiduciary”.

Susan and her siblings wonder if it would be wise to start gifting Fred’s cash and property to themselves now, as Dad doesn’t have need of all that cash, and then they can manage the rental property between them. Of course they have committed to each other that they will take care of Dad – if what remains of his money runs low they will pay for whatever he needs. They also wonder if they should add themselves onto Fred’s bank account, as “joint owners” so that when he dies, the account will not go through probate (or so they think). What about the rental property – should they add themselves to title so the land skips the probate?

They meet with a lawyer and this is the advice the lawyer gives to Susan:

• you cannot use your powers under the Power of Attorney to “gift” Dad’s cash to yourselves – regardless of the fact that you have the best of intentions (and it might actually benefit your father by allowing him to qualify for the full Old Age Security benefit), in doing so you have taken your father’s assets for yourself. This is contrary to the law, and would be a breach of your fiduciary duty.
• you cannot use your powers under the Power of Attorney to transfer Fred’s real estate to you and your siblings – this is directly prohibited by the Power of Attorney Act, unless the POA document itself gives you this power (which is rare). The Land Title Office would not permit you carry this out.
• you cannot add yourselves to Fred’s bank account as joint tenants – doing so would be considered to be “gifting” your father’s assets to yourself, which again is not permitted (unless the POA document itself permits this, and again this is rare).

Often, the best way for Susan to view her role as an Attorney is as a caretaker, to protect and maximize the value of the assets (unless it would somehow cause harm), but not to give assets away, regardless of how admirable her intentions are. Dad could have taken these steps, while he was still capable, but Susan herself, under the Power of Attorney, cannot.

If your client is contemplating taking steps such as these under a Power of Attorney, please encourage them to seek legal advice about their duties and obligations, and how best to protect themselves, first.