Powers of Attorney are considered as the main tool for the management of the affairs of a person who has lost the capacity to manage his or her own affairs. In fact, powers of attorney for property are not limited to management of an incapable person's affairs and the use of powers of attorney in business and financial circles to handle business affairs is widespread. Many believe that powers of attorney essentially came into being with the passing in Ontario of the Substitute Decisions Act, 1992, which as the title states, was passed in 1992 and ultimately received Royal Assent and became effective in 1995. In fact, powers of attorney have been in the use for many years before 1992 and have been effective for management during incapacity in Ontario since 1979. The Substitute Decisions Act, 1992, amounted in many ways to an attempt to codify the use of powers of attorney as a management tool for incapable adults as well as codifying the expectations placed on a guardian handling the affairs of an individual held to be incapable but not having a valid or workable power of attorney. In the years since the statute was enacted, probably as a result of the aging of the overall population and possible because of an increasingly litigious society, there has been a growth in litigation revolving around powers of attorney for both property management and personal care.
To give a power of attorney for property management, an individual must be full legal age and have mental capacity to assign decision-making authority, even if the person may not have the full capacity to manage his or her own affairs. For a power of attorney to be effective in the event of mental incapacity, it must specifically state that the power of attorney is to be effective in the event of mental incapacity. Beyond that requirement for effectiveness in case of incapacity, there is no fixed form of power of attorney required under the Substitute Decisions Act, 1992. Trust companies prepared to act as attorneys for property for the most part have specific powers that they insist upon having inserted into general powers of attorney. Similarly, financial institutions have their own forms of power of attorney which they often require as a prerequisite to allowing an individual to have signing authority over specific bank accounts. Most lawyers have developed their own precedents for the document and very often powers of attorney are prepared as part of the overall will and estate planning process. Because powers of attorney are mostly prepared as part of the will planning process, often there is little specific planning that goes into power of attorney itself. However, a power of attorney is a very potent document which gives the attorney almost complete control over the donor's assets, while he or she is still alive and needs those assets. Particularly in the case of elderly and vulnerable clients, the need for careful planning in terms of the choice of attorney and the powers given to him or her, is very real and needs to be a serious concern for any planner.
To be capable of making a power of attorney for property an individual must meet the tests defined in the Substitute Decisions Act, 1992. They are similar to the elements that must be present to determine capacity to make a valid will, but have additional elements in light of the fact that an attorney can deal with assets while the donor is still alive and such action can have tremendous impact on the donor him or herself, These elements are:
- Knowledge by the donor of the kind of property he or she has and its approximate value;
- Awareness of obligations owed by the donor to his or her dependants;
- Knowledge that the attorney can do on behalf of the donor anything that the donor could do in respect of property other than the making of a will, and subject to any limitations placed in the power of attorney document;
- Knowledge that the attorney must account for his or her dealings with the assets of the donor;
- Knowledge that the power of attorney can be revoked;
- Appreciation that the value of the assets of the donor can decline unless the attorney manages them prudently; and
- Appreciation of the possibility that an attorney could misuse the powers given to him or her.