When your client loses mental capacity, who is authorized to give you instructions? And how can you be certain those instructions are from the proper delegate?
An enduring power of attorney (EPoA) can provide answers, though there’s often more to it than that.
An enduring power of attorney, also known as a durable power of attorney, continuing power of attorney (for property) or protection mandate (in Quebec), continues beyond the loss of capacity. It provides the legal basis, comfort and protection for financial advisors to continue dealing with their clients’ investments in a relatively seamless manner.
For advisors to rely on a directive or instruction from an attorney or mandatary (person named to make decisions for a client in Quebec), the advisor must confirm if the EPoA or protection mandate is effective or triggered.
Clients may leave certified or notarized copies of their EPoA on file with their advisors. This, however, doesn’t necessarily mean the document has been activated.
In Quebec, the process of ensuring the activation or effectiveness of the protection mandate (either for the person or property) is called homologation. The mandatary (sometimes represented by a notary or solicitor) applies to court after medical professionals or social workers have documented proof of incapacity. The courts must confirm the client’s incapacity before an advisor can receive instructions from the mandatary.
In Canada’s common law jurisdictions, an EPoA generally becomes effective on the date of execution, or at a specified date in the future or upon the occurrence of a contingency. A contingency generally provides for licensed physicians to determine that the client has lost capacity.
When an EPoA becomes effective on the date of execution, the potential challenge for the advisor is knowing who provides them with instructions — the client or attorney?
In Fareed v Wood (2005 ONSC), an Ontario case, the client and donor named her solicitor as attorney under her continuing PoA in 1992. The continuing PoA she executed did not contain a triggering clause; in other words, it became effective on the date it was signed. The solicitor was responsible for her investments as well as her income tax returns.
The client didn’t lose capacity after executing her continuing PoA, and she went about her usual activities, including writing large cheques that significantly reduced her estate’s value at her death in 1999.
An estate beneficiary sued the attorney, and was successful in the claim that he mismanaged the client’s affairs, leading to the estate’s reduced value. The court ordered the solicitor to reimburse the estate to the tune of over $100,000.
Financial advisors would be well served, especially in situations where the EPoA lacks a triggering clause, to request a document that details the shared responsibilities of client and attorney. This would ensure comfort and protection for the advisor, attorney and client. At the very least, such a document would provide cover for the advisor and attorney (if these are different people).
The broad strokes of the document may name the primary decision-maker for the principal residence or for specific investment accounts.
If the client doesn’t wish to share responsibilities with the attorney, the attorney should suggest a document that provides for exactly that.
Tim Brisibe, TEP, is Director, Tax & Estate Planning at Mackenzie Investments.