Sunday, April 16, 2006

Springing Powers of Attorney

As I wrote in a previous post, Powers of Attorney: Responsibilities of the Attorney, here, "[a] power of attorney is a document that allows you to appoint someone to act on your behalf in handling your assets and financial affairs."

At common law, if you made a power of attorney appointing someone to handle your financial affairs (called your “attorney” or the “donee” of the power of attorney), and you subsequently became incapable of managing your affairs, the power of attorney terminated, and the attorney would no longer have authority to manage your affairs.

However, in British Columbia we have legislation that allows you (the “donor”) to make a power of attorney that continues in effect despite your subsequent mental infirmity. This is set out in Section 8, of the Power of Attorney Act, RSBC 1996, c. 370. In British Columbia we call a power of attorney that will remain in effect despite the donor’s subsequent mental infirmity an “enduring power of attorney.”

We often use enduring powers of attorney as planning tools for our clients in case they later become of mentally incapacitated. By making an enduring power of attorney you are appointing someone to look after your affairs if someday you lose the mental capacity to look after your own finances. This is often the main reason people make enduring powers of attorney.

Most powers of attorney come into effect immediately. This means that if you make a power of attorney, the person you appoint as your attorney could use the document to deal with your house, bank accounts or investments now, even while you have capacity. If your attorney uses it against your wishes while you are competent, then he or she would be misusing the power of attorney, but the Land Title Office, or the financial institutions you deal with would not know that.

Some people do not want the person they appoint as their attorney to be able to use the document, unless they become incapable of managing their own affairs. There are a couple of ways you can do this.

One way is to leave the document with your lawyer, or with someone else, with a letter of instruction stating that the document may only be released to the attorney if the attorney brings in a letter from a medical doctor expressing the opinion that you are no longer capable of managing your affairs, or if you later authorize the document’s release.

A second way you can prevent your attorney from using the power of attorney while you are still mentally competent is to provide in the power of attorney document itself that the power of attorney may only be exercised during any subsequent mental infirmity on your part. This is called a springing power of attorney.

Until recently, there was some question about whether springing powers were effective in British Columbia. Apparently, Land Title Offices were refusing to register a springing power of attorney, which had the effect of preventing an attorney appointed under a springing power of attorney from dealing with the donor’s land.

This question appears to be settled by the British Columbia Court of Appeal’s decision in Goodrich v. British Columbia (Registrar of Land Titles), 2004 BCCA 100 (CanLII)(2004), 236 D.L.R. (4th) 433; (2004), 26 B.C.L.R. (4th) 45, which you can read here. In that case the Registrar of Land Titles refused to register a springing power of attorney. The Registrar argued that section 8 of the Power of Attorney Act did not authorize springing powers of attorney. The Registrar also raised concerns about how the Registrar would be able to determine whether the donor had a mental infirmity.

The Court of Appeal rejected the Registrar’s argument that springing powers of attorney were invalid, and held that the springing power of attorney in Goodrich was valid. The court referred the case back to the Supreme Court to determine if the donor was suffering from a mental infirmity.

Madam Justice Saunders recognized the practical problems of determining when a springing power of attorney springs into effect. She wrote at paragraph’s 30 and 31,

[30] The Registrar raises concerns about the integrity of the registration system and correctly notes the reliance that is placed upon documents presented for registration. Where, the Registrar asks, is the safeguard to ensure the condition in the power of attorney is met? Respectfully, I do not agree with the chambers judge that the Land Title Act provides no mechanism enabling the Registrar to make a determination of mental capacity. While a more satisfactory process might be devised, it appears to me that the Land Title Act empowers the Registrar to conduct an inquiry under s. 382(1) of the Land Title Act as part of determining whether the instrument signed by the attorney is registrable, that is, whether the instrument is signed by the attorney under a valid power of attorney. From this decision a party may appeal to the Supreme Court of British Columbia. If I am wrong in this, and in any case, two other avenues appear to me to be open to settle the question in a way that provides the necessary certainty: either the Registrar may state a case under s. 314 of the Land Title Act, or the attorney may seek a direction pursuant to Rule 10 of the Rules of Court.

[31] Any of these three avenues will involve an enquiry into the mental state of the donor, with consequent delay and costs. For that reason, and absent an amendment to the legislation that will establish a procedure such as that recommended by Professor McClean, it would be better that the power of attorney prescribe on its face the evidence which will be sufficient to satisfy the condition there set out.

I have concerns about using springing powers of attorney. I would recommend to anyone who makes one that they make sure that the document sets out very clearly what evidence is required to show when the attorney’s authority starts. For example, you could require an opinion from a medical doctor, or opinions from two doctors, that you are no longer mentally competent to manage your affairs. On the other hand, when the power of attorney is registered with a Land Title Office, the Registrar will require any letters from your doctor or doctors, which will then become public record.

You should balance the potential complications and loss of privacy against any benefits before making your power of attorney a springing power of attorney.

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