Powers of Attorney: Consider Allowing the Person You Appoint to Use Your Wealth to Support Your Spouse and Family

 

When acting as an attorney under an enduring power of attorney in British Columbia for someone who has lost the capacity to make her own decisions, the attorney must act in the best interest of the person who appointed her. The word “attorney,” in this context does not mean a lawyer, but rather the person appointed in the power of attorney. (If I may digress a little, although some refer to the attorney as the “power of attorney,” a power of attorney is actually the document, rather than the person appointed.) But whether you call her an “attorney” or “power of attorney,” the principle that she must act in the best interest of the person who appointed her generally makes sense. You don’t want to give someone the power of sell your house, or withdraw your investments to someone who is going to take your money or give it to someone else, leaving you impoverished. But as we will see, it is not always that straight forward.

 You may want to allow your attorney to use your funds to benefit others particularly your spouse, minor children and perhaps adult children. If you have a history of charitable giving, you may want to allow your attorney to continue to make donations if you are not longer capacitated. When spouses make powers of attorney, they often appoint each other. It is also common for spouses to pool at least some of their financial resources for their benefit as a couple, even when they keep many of their assets separate. When one spouse loses capacity, the other when acting as attorney may be placed in a conflict of interest by virtue of the fact that the management of the now incapacitated spouse’s assets may benefit the capacitated spouse who is the attorney.

This issue can and should be addressed in the power of attorney. In your power of attorney, you may relax the rule the the attorney must act in your best interest by expressly allowing the attorney to use some of your assets to benefit your spouse or others. You can include a clause allowing for gifts, which can be unlimited, or restricted to a certain amount or percentage of your assets annually. You can expressly provide that your attorney may make decisions to benefit himself, especially if the attorney is your spouse. When I take instructions to draft a power of attorney, I ask clients if they want to allow their assets to be used to benefit their spouses, and most do.

Unfortunately, most of the powers of attorney I have seen over the years do not address this issue. Many are simple one-page documents with no provisions allowing the attorney to use the power of attorney to support other family or to make any gifts. In some cases this may work just fine, but the difficulties for a spouse in a financially interdependent marriage or common-law relationship when the power of attorney is silent on this issue is illustrated in the case of Sommerville v. Sommerville, 2014 BCSC 1848.

Richard Craig Sommerville (referred to in the decision as “Craig”) appointed both his spouse, Isabel Sommerville, and his daughter Janet Sommerville as his attorneys. Either could act separately. His marriage to Isabel was his second marriage, and Janet was his daughter from a previous marriage.

Craig and Isabel Sommerville had a marriage agreement, which provided that each would have his and her separate assets, but the agreement also contemplated that they would have joint assets. Craig Sommerville owned the house they were living in, had larger investments and larger pensions. The agreement initially provided that if Craig Sommerville had to move out of the house because of ill health, Isabel would have to move out after a year, but they amended the agreement so that she would be able to stay in the house. Craig’s will provided that Isabel would be able to remain in the house after his death until she remarried or died. He left the residue of his estate to his four children.

Craig Sommerville had arranged for his pensions to go into a joint account with Isabel, who contributed a portion of her pension to the joint account. They used the joint account for their expenses. Craig also had investment income, including RRIFs, most of which was reinvested.

After Craig became ill, Janet Sommerville redirected his pensions into an account in his sole name, in contemplation that he may have to go into a care facility, which he subsequently did following a stroke. She did so without consulting Isabel first. Not surprisingly, Isabel disagreed, and Janet then brought a petition to court to seeking directions.

Janet Sommerville’s position was that the pension funds should be used first to pay for her father’s personal and care expenses, then expenses necessary to preserve the home, and then only to the extent that there is pension income left, the pension income could go into the joint account for Isabel’s use. Janet also sought to be mainly responsible for the management of Craig’s finances.

 Madam Justice Fisher summarized the duties of an attorney as set out in the legislation as follows:

 

[39]         An attorney’s duties are now enunciated in s. 19 of the Power of Attorney Act. Section 19 (1) essentially codifies the duties of a fiduciary to act honestly and in good faith, to exercise reasonable care, and to account to the donor, within the authority granted in the power of attorney. Section 19(2) specifies that an attorney making decisions about the donor’s financial affairs must act in the donor’s best interests, taking into account the donor’s “current wishes, known beliefs and values” and any directions contained in the instrument, and s. 19(3) requires an attorney to give priority “to the extent reasonable” to meeting the personal care and health needs of the donor.

Madam Justice Fisher rejected the argument made on Isabel’s behalf that an attorney could use the power of attorney for the benefit of the donor’s family in a manner analogous to a court appointed committee. She noted that the ability for an attorney to make gifts is set out in seciton 20 of the Power of Attorney Act is limited.

However, in exercising a power of attorney, you may consider the donor’s wishes including making provision for a spouse or other family member. She wrote:

[45]         In my view, s. 19 does not alter the attorney’s common law duty to act only for the benefit of the donor. However, the best interests of the donor are not to be considered in a vacuum. His “current wishes, known beliefs and values” may permit the attorney to continue to provide for a spouse or family member if there is clear and convincing evidence of an intention to do so, and it can be done without compromising the donor’s interests.

 Madam Justice Fisher found on the basis of Craig’s conduct in directing the pension income into the joint account, the terms of the marriage agreement and Craig’s will that he wished for Isabel to manage their family finances and he intended to share his pension income for their joint expenses.

At paragraph 72, Madam Justice Fisher issued directions under section 36 (1) of the Power of Attorney Act as follows:

1.       All of Craig’s pension funds should be deposited into a bank account in the joint names of both Isabel and Janet as attorneys for Craig. The funds currently held by Janet as attorney are to be deposited into such an account. The pension funds that are still being deposited into Isabel’s joint bank account should be re-directed into this new account. 

2.       Isabel is to continue to manage Craig’s finances and will responsible for running the bank account referred to in (1) and paying for Craig’s personal and health care expenses. Janet will be able to monitor the use of the account as a joint attorney. 

3.       In using the pension funds, Isabel is to give priority to Craig’s monthly personal and health care expenses. She may use pension funds that are not required for Craig’s personal and health care expenses in her discretion and for her own expenses. 

4.       While she continues to live in the Lochside residence, Isabel may use Craig’s investment income to pay expenses associated with the ownership of the home, which will include property taxes, insurance, utilities, repairs and maintenance. Otherwise, Isabel may not use Craig’s investment income for any purpose other than to supplement his personal and health care expenses if this becomes necessary. 

5.       If Janet has any concerns about how Craig’s income is being used, she is to consult with Isabel and is not to take any steps or make any directions without Isabel’s concurrence unless she considers it necessary to prevent Craig’s assets from being used improperly.