Tag: revocation of power of attorney

What Is a Power of Attorney?( POA)

The BC Court of Appeal decision in Houston Estate v Houston 2012 BCCA 300 raises a few very good legal issues relating to Powers of Attorneys.

disinherited.com will blog further about this appeal case, but for starters, the case has an excellent review on this particular type of ageny called an Attorney.

A power of attorney is a type of agency.

At common law, where an agency was granted by deed giving specified authority to the agent, it was called a “power of attorney”. In British Columbia, the Power of Attorney Act has modified the common law with respect to powers of attorney. (Like counsel before us, I refer to the Act as it stood in April 2009 when the power of attorney in this case was exercised. The Act has since been amended substantially.) The Act does not define what is a power of attorney but provided in s. 9 that a general power of attorney “may” be in Form 1 or Form 2 of the Schedule to the Act. Neither form required that the document be executed under seal (and neither instrument in this case was). The Land Title Act contains additional requirements that apply to any document tendered for registration that has been executed under a power of attorney, and requires the registrar to maintain an index of powers of attorney: see ss. 51-57.

Being a type of agency, the power of attorney is subject to various rules, some of which are codified in the Act, for the protection of the agent. As Professor G. Fridman notes in Canadian Agency Law (2009), although at common law a power of attorney was strictly construed, the ordinary rules of construction of documents are employed in determining the scope of the agent’s authority where the document is not under seal or where the authority is given orally. Thus Fridman writes:

If the document involved is not a deed, or the contract of agency is parol, the agent’s authority is to be construed having regard to the purposes of the agency, i.e., the surrounding circumstances and the usual course of the business in which the agent is concerned. In particular, where general words are used, they must be construed and understood in light of the usual course of the agent’s business.

Writing which contains the agent’s authority is of prime importance, but if there is any ambiguity about the wording of the agent’s authority then, as long as the agent acts in good faith and in accordance with a reasonable construction of his authority (if there is more than one possible), he will be considered to have acted within his authority, whether or not in fact what he did was what the principal intended he should do. [At 64.]

Sections 3 and 4(1) of the Power of Attorney Act reflect the common law’s concern for the agent whose authority has been terminated without his knowledge:

3           If an agent purports to act on behalf of a principal at a time when the agent’s

authority to do so has been terminated and

1. the act is within the scope of the agent’s former authority, and
2. the agent has no knowledge of the termination,

then, for the purpose of determining the liability of the agent for the act, the agent is deemed to have had the authority to so act.
4(1)      If

1. the authority of an agent has been terminated, and
   1. a person who has no knowledge of the termination purports to deal with the principal through the agent,

then, for the purpose of determining the legal rights and obligations of the principal in relation to that person, the transaction is, in favour of that person, deemed to be as valid as if the authority had existed.

At common law, an agency normally terminates when the undertaking entrusted to the agent has been performed or where the agency was given for a stated period of time. An agency will also terminate if the subject matter of the agency is impossible of performance, or upon the death or insanity of either the principal or the agent while the agency is extant: Fridman, supra, at 123-28. In British Columbia, amendments to the Act in 1979 reversed the common law rule regarding the principal’s mental incompetence by providing the option of the “enduring” power of attorney: see s. 8(1), quoted above at para. 20.

Except where the agency is irrevocable (i.e., where the agent by deed or for valuable consideration has agreed to act on the principal’s behalf in order to protect an interest of the agent)the principal may unilaterally revoke or terminate the agency relationship, subject to its express terms. It seems clear that the agency is revoked by the giving of appropriate notice to the agent, and no prior warning is required at common law. ”

Following years of consultation, an amended Power of Attorney Act  came into effect on September 1, 2011, and now has “some teeth” in enduring powers of attorney.

This new Act brings important changes to the law governing enduring powers of attorney (“EPOA”) i.e.  those which remain or become effective after the maker or grantor of the power of attorney becomes mentally incompetent.

The important changes, by and large apply to enduring powers of attorney and not to other powers of attorney i.e. those which lapse once the maker or grantor (known as an “adult” in the new Act) becomes mentally incompetent.

Historically, enduring powers of attorney provided great potential for the financial abuse by unscrupulous attorneys.  It is thus a welcome relief to see the tightening of the rules surrounding the granting and use of these enduring powers of attorney.

In this article we will summarize, in general terms, some of the noteworthy new provisions however we will only touch on a few.  It is thus crucial for legal professionals to read the Act and inform themselves.

For our purposes, the noteworthy changes dealing with enduring powers of attorney (EPOA) may be classified broadly as follows:

a) the repeal of the former s.8  which previously set out the rules for EPOAs,

b) the enactment of new Part 2  containing the new rules covering

• the making of EPOAs ,
• setting out the duties, powers, liability and compensation of attorneys
• setting out when an EPOA becomes effective, how it may be changed, revoked, suspended or terminated and the limits on the authority of the attorney,

c) the enactment of new Part 3  covering general matters such as access to information, reporting abuse and neglect to the Public Trustee, investigations by the Public Trustee, seeking directions from the court plus other procedural and jurisdictional matters.

d) the inclusion of a new optional standard form for powers of attorney.

The Mental Capacity Required to Grant an Enduring Powers of Attorney

Much of the financial abuse seen in our own practice has involved abuse by an appointed attorney i.e. the very person previously entrusted by the victim to handle his or her affairs.

We thus view the raising of the bar in terms of the mental capacity required of a person granting a EPOA as a refreshing change.    The Act sets out several criteria which must be met in order for a person to be mentally capable of granting an enduring power of attorney.

As an aside, some of the wording in the Act seems a little confusing at first blush—for example the maker of the POA is described as an “adult” and the criteria for capacity are stated in double negatives.

For example, s. 12 specifies that an adult may make an enduring power of attorney unless the adult is incapable of understanding the nature and consequences of the proposed enduring power of attorney. The adult is incapable of understanding the nature and consequences of the proposed enduring power of attorney if the adult cannot understand all of several concepts.

To restate this in positive terms, in order to be able to make a EPOA, a person (an “adult”) must be able to understand all of the following:

a) The property the adult owns and its approximate value;

b) The obligations the adult owes to his or her dependents;

c) The fact the appointed attorney will be able to do anything financial, that the adult could do if capable, subject to the conditions and restrictions set out in the EPOA, the only exception being making a new will on his or her behalf;

d)  That, unless the attorney prudently manages the adult’s business and property, they may decline in value;

e)  An attorney can, and may possibly misuse their authority;

f)  The adult may revoke the EPOA so long as they are mentally capable; and

g)  Any other prescribed matter i.e. any further matter set out in a legal enactment

s. 11 presumes an adult to be mentally capable “until the contrary is demonstrated”. The Act unfortunately provides little guidance as to what mechanism will “demonstrate” incapacity.  Presumably demonstrating incapacity will involve proving the absence of understanding of one or more of the concepts delineated in s. 12.

Raising the Bar in terms of Required Mental Capacity

The new s. 12 significantly raises the bar vis-à-vis the mental capacity required to grant a valid EPOA.  Previously our courts used a lesser standard in assessing the mental capacity required.

The test for mental capacity was previously set out in the decision of Egli v Egli Estate, 2005 BCCA 627.  According to this decision, the mental capacity required was simply whether or not the maker (adult) understood the nature and effect of the EPOA.

There was no requirement that, at the time of granting, the adult know and understand the nature and extent of his or her property and financial affairs.  Neither was there any requirement that the adult, then be capable himself or herself of performing the acts, authorized by the EPOA, for the attorney to perform.

This previously low standard has thus been substantially raised in terms of the mental capacity required to grant a EPOA.  It is now in the same range as that required to make a will.

If an adult lacks capacity based on the various criteria set out in s. 12, then the enduring power of attorney will be invalid.

This new, more exacting standard will undoubtedly reduce the potential for financial abuse by attorneys.

Appointment of an Attorney

An attorney is a trustee or fiduciary in respect of the adult appointing him or her as attorney.

There are restrictions set out in s. 18 of the Act as to who may be named as an attorney.  To avoid an obvious conflict of interest, caregivers, may not be appointed as attorneyunless they are the child, parent or spouse of the adult.

Other than caregivers, the adult may appoint as attorney an individual, the Public Guardian and Trustee, or a trust company licensed under the Financial Institutions Act.  The adult may also appoint alternate attorneys, or appoint more than one attorney and assign the same or different areas of authority to each.

An adult may give an attorney the power to do anything which the adult may otherwise lawfully do, by agent, in relation to the adult’s financial affairs. These powers are limited to the adult’s financial affairs.  By the s. 10 definition, the adult’s financial affairs includes their business and property, and the conduct of their legal affairs.

An attorney does not have power to make decisions about the adult’s personal care or health care.  Such matters are instead left to be dealt with under any Representation Agreement or Advanced Directive

Duties of Attorney

The essential duties of an attorney are set out in s. 19.   That section reads, in part, as follows:

“s. 19 (1) An attorney must

(a) act honestly and in good faith,

(b) exercise the care, diligence and skill of a reasonably prudent person,

(c) act within the authority given in the enduring power of attorney and under any enactment, and

(d) keep prescribed records and produce the records for inspection and copying at the request of the adult”

Notably s 19 (1) (d) creates a new statutory requirement to keep and produce financial records. These records are defined in s. 2 of the regulations.  They include a current list of assets and liabilities, invoices, bank statements, and other records as required to provide a full accounting of receipts and disbursements, income and capital.

s. 19 (3) includes many other duties such as, in general terms, a duty to

a) give priority to meeting the personal care and health care needs of the adult, to the extent reasonable

b) invest only in accordance with the Trustee Act, unless the EPOA states otherwise

c) foster independence and encourage the adult’s involvement in decision-making, to the extent reasonable

d) not to dispose of property that is left as a specific gift under the adults will;
e) to keep the adult’s personal effects at their disposal, to the extent reasonable

s. 19 (4) requires the attorney to keep the adult’s property separate from his or her own unless the property is jointly owned by the adult and the attorney.  In other words, the attorney must not mingle the adult’s property with his or her own.

Powers of the Attorney

An attorney may make a gift or loan, from the adult’s property if the EPOA expressly permits this or if the adult usually made gifts of that nature and will have enough left over to cover their needs and obligations.  The total value of all gifts and loans in a year, however, must not be great than  $5000 or 10% of the adult’s taxable income for the previous year, whichever figure is the lesser.

An attorney has no power to make or change a will for the adult.  Nevertheless, an attorney may, with court approval, change a beneficiary designation such as, for example an insurance or pension benefit.  Otherwise the attorney has power to rename a previous beneficiary previously named by the adult while mentally capable, in any renewal or replacement instrument. In any new instrument, the attorney may name the adult’s estate as the designated beneficiary.

New Optional Template for Enduring Power of Attorney

The province has also provided for an optional new standard form for Enduring Powers of Attorney.   The new form, which is not mandatory, contains several useful provisions.  It includes

a)            a revocation clause;

b)            a procedure for appointing of an alternate attorney and a means for providing evidence of the alternate attorney’s authority to act;

c)            a specific statement of the attorney’s authority;

d)            a requirement to specify whether or not the attorney is to be compensated and, if so, how compensation is to be determined;

e)            a statement of the conditions precedent to the EPOA becoming effective.  For e.g. it may become effective immediately on signing by both the adult and the attorney or only upon the happening of a specified event such as a medical specialist declaring the adult  incompetent;

f)             a specific provision for signing by the attorney as well as the adult. Each of them must sign in the presence of a witness, if the witnesses a lawyer or notary publics; otherwise, 2 witnesses are required. This provision for  signing by the attorney is separate from the attorneys statutory declaration that is required if the EPA is to be filed in the land title office.

CONCLUSION

Enduring powers of attorney are a valuable tool in estate planning however there is unfortunately  an associated history of financial abuse.  In terms of this historical abuse there were several factors at play including

• the low threshold for mental capacity to grant an EPOA,
• the lack of record keeping requirements and
• the lack of routine oversight of an attorney’s actions by the courts (in contrast to committeeships under the Patients Property Act)

We are optimistic that the new Act sets new standards for reducing this potential for financial abuse.

Although adults and attorneys will both require more legal advice than previously, this seems a good compromise in order both to limit the risk of financial abuse and to avoid the greater expense of committee proceedings and appointment under the Patients Property Act.