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A business owner’s Will is often the focus of an estate planning discussion. As part of your estate planning you can, and should, consider what will happen regarding the management of your business and its assets when you die. However, it can be equally important to consider a situation where you are alive, but become incapable of managing your property. What effect would your sudden absence have on your business? A Power of Attorney can be vital to ensure that your business will run smoothly if you become unable to manage your property.
What is a Power of Attorney
A Power of Attorney is a legal document which appoints a designated person or persons (the “Attorney” or “Attorneys”) to make decisions on behalf of the person giving the Power of Attorney (the “Grantor”). Unlike your Will, which speaks only from the date of your death, a Power of Attorney is effective while you, the Grantor, are still alive.
There are two types of Powers of Attorney: a Power of Attorney for Property (“POAP”), and a Power of Attorney for Personal Care (“POAPC”). A POAP is designed to give the Attorney power to manage your financial affairs, which can include anything from paying your bills and managing your investments to selling your home. A POAPC is designed to give the Attorney power to make personal care decisions on your behalf when you are unable to communicate your own wishes regarding your personal care. These decisions can include what you eat, what medical treatments you will receive, and whether you should move into long-term care.
The focus of this article will be on POAPs in Ontario, but the concepts discussed have a wide applicability to other provinces. If you have assets outside Ontario, consider reaching out to a lawyer in the relevant jurisdiction to inquire about the specific rules in that province.
POAPs – General considerations
The role of an Attorney under a POAP is to make decisions with respect to your property on your behalf, subject to any restrictions the Grantor specifies in the document. Pursuant to the Substitute Decisions Act of Ontario (the “SDA”), unless you specify otherwise, your Attorney can take any action you could take with respect to your property, except make a Will. The appointment can become effective at the time of signing the POAP, or it can come into effect on some later occurrence that is specified in the POAP, such as on a specific date, or on the determination that you are incapable of managing your property.
The SDA provides that a person is incapable of managing property if they are not able to understand information that is relevant to making a decision in the management of their property, or are not able to appreciate the consequences of a decision or lack thereof. If a person’s capacity is in dispute, a determination may be made by a qualified capacity assessor. If a POAP is to come into effect upon the Grantor’s incapacity, it is important for the POAP to specify how a finding of incapacity is to be made.
There are many considerations in choosing who to appoint as your Attorney. A key requirement is that the Attorney be trustworthy, as this person will potentially have full access to your personal information and assets. Although the Attorney is under a fiduciary duty to manage your affairs for your benefit, there is always potential for abuse or mismanagement, so appoint someone you trust. For many people, this will be a spouse, a family member, or a close friend. You may consider appointing more than one Attorney if you trust your Attorneys but are comforted by the answerability that a co-appointment creates.
There is no requirement that your Attorney for property be the same person as your Attorney for personal care, but keep in mind that these people may need to work together. For example, if you are in long-term care, your Attorney for personal care may be making health care decisions for you, but it will be your Attorney for property who needs to pay the bills.
Regardless of who you appoint, consider discussing the role with the person in advance, to ensure that they are willing and able to act. There is no obligation on an appointed Attorney to accept the position.
POAPs – Additional considerations for business owners
It goes without saying that the owner of a small business is integral to its operation. This is certainly true for a sole proprietorship, where the business has no separate legal existence from its owner, but can be equally true where your business is run through a private corporation in which you hold shares.
MULTIPLE POAPS
An option to consider as part of your larger estate plan is the creation of multiple POAPs, which can operate at the same time. A Grantor has the ability to give two, or even more, POAPs, certain of which would be limited to certain assets. For example, it may be helpful for you to have a POAP which covers specific assets related to your business or corporate interests, such as shares in a private company (your “Business POAP”), as well as a POAP which covers all other assets (your “Personal POAP”).
WHO TO APPOINT
One of the main benefits of having a separate Business POAP is that you can appoint a different person to manage those specific assets on your behalf. It may be that your spouse or a child is the best person to manage your personal assets, but you have a business partner or associate that is a better choice for your corporate or business interests.
If appointing a separate Attorney under a Business POAP, it is important that the person has the knowledge and skill required to manage the assets you are entrusting them with. If you have employees, consider whether your employees will work well with the person you have appointed. It may be wise for you leave that person specific instructions either inside the document, or have discussions with them outside of the document. As with any Power of Attorney, it is important to appoint someone you trust.
WHEN IS IT EFFECTIVE
In addition to who to appoint, consider whether the Business POAP should be effective immediately upon signing the Business POAP, or on a finding of incapacity.
You may have concerns about your Attorney being able to act before you are deemed incapable, but those concerns should be balanced with practicality. There may be times where, though mentally capable, you are prevented from taking an action on behalf of your business because you are physically unable. Perhaps you are out of the country, or have other plans or responsibilities. Business owners know that issues and opportunities sometimes need to be acted on quickly. If your Attorney is required to show evidence of your mental incapacity, they would be barred from acting in those scenarios.
You can also place other restrictions on your Attorney, such as a prohibition on the sale of certain shares before a triggering event. However, whenever you place limitations on your Attorney, keep in mind that you are tying that person’s hands. If your Attorney’s authority to bind your business is not clear enough in a given situation, financial institutions or business partners may hesitate to work with them. Proper drafting of the Business POAP can ensure your Attorney has the authority they will need.
COMPENSATION
Attorneys are generally able to take compensation for acting, subject to any restrictions in the document itself. Even for a Personal POAP, this is an important consideration.
The POAP document itself may specify an amount of compensation or provide that there is no compensation entitlement. The Attorney may not take a compensation amount greater than specified in the POAP document (Concentra Trust v James Russell Connacher, 2023 ONSC 4905 (CanLII)). If the document is silent, the SDA provides that the Attorney may take compensation in accordance with a prescribed fee scale.
If appointing someone under a Business POAP, consider whether they should receive compensation, and if so, how much? Is the fee scale appropriate, or does it make more sense to provide a specific amount or process for determining compensation? Keep in mind that no one can be forced to act as an Attorney, and the role can involve a great deal of work.
POTENTIAL PITFALL: AVOID ACCIDENTAL REVOCATION
A final key consideration when putting multiple POAPs in place is ensuring they do not unintentionally revoke each other. In Ontario, the general rule is that a POAP is terminated as soon as the Grantor executes a new POAP. However, if the documents expressly allow the existence of multiple POAPs, this revocation can be avoided.
A potential pitfall can occur where the Grantor gives a limited POAP dealing with only certain assets, such as a Business POAP, or a POAP prepared by a bank to cover assets only at that bank. If the limited POAP does not expressly allow the existence of other POAPs, it can unintentionally revoke an earlier POAP which may have covered all of the Grantor’s assets. The unfortunate result in this scenario is that the Grantor is left with only the limited POAP, and no appointed Attorney to deal with the rest of their assets. If the Grantor has already lost capacity to deal with their property, a court application could be required to appoint a guardian of property. This court-appointed guardian may or may not be the person that the Grantor would have chosen themselves.
An experienced estates lawyer can help with the proper drafting of multiple powers of attorney to avoid this pitfall, and help you decide whether multiple powers of attorney are a good fit as part of your larger estate plan. We encourage you to speak with a member of our Private Client Services team for guidance.
