By Zachary Murphy-Rogers and Scott Stewart-Lee
Incapacity planning
As Canada’s population continues to age, it has become increasingly important to understand the legal options available if your loved ones are struggling to take care of themselves. If you, or someone you know, has been appointed as an Attorney (under a Power of Attorney) or as a Representative (under a Representation Agreement) for a close friend or family member, you may have questions about the extent of the powers provided.
Legal documents, such as Powers of Attorney and Representation Agreements, are powerful tools that allow an appointee to manage important aspects of another person’s life including: financial, legal, personal and health care decisions. These documents are typically created when planning for incapacity, possibly due to aging or illness. Because of the sweeping powers that these documents provide, it is imperative that they are drafted properly by someone who understands the law and the nuances of your situation. A poorly-drafted Power of Attorney or Representation Agreement can inadvertently provide powers beyond what was originally anticipated, or restrict the Attorney or Representative from taking the steps needed to ensure the incapable party’s wellbeing.
Derreth (Re): a cautionary tale
A recent decision made by the Supreme Court of British Columbia helps to illustrate possible risks of poorly drafted documents. Derreth (Re)[1] involved a Petition to the Court from Eugene Derreth, the only child of Doreen and Reinhard Derreth. Doreen suffered from dementia and was unable to manage her financial affairs on her own. In anticipation of problems that might arise, she made a Power of Attorney appointing Eugene to manage her legal and financial matters. However, the document did not expressly discuss Eugene’s powers to make gifts or loans.
Doreen had been reliant on Reinhard for managing the couple’s money and he had devoted considerable thought to planning for their deaths. Part of his plan involved an equal distribution of the proceeds from the sale of the family vacation home in 2010, which were placed in an investment account in the couple’s joint names. When either Reinhard or Doreen died, half of the proceeds were meant to be distributed to Eugene as a gift, with the other half going to the surviving spouse. When Reinhard died, the proceeds of the sale passed entirely into Doreen’s possession. The purpose of Eugene’s Petition to the Court was to obtain permission to transfer what was to be his share of the sale proceeds, $250,000, from Doreen to himself as Reinhard had intended.
Doreen was not in any financial distress at the time of the Petition. She had savings totalling approximately $2.7 million in addition to the proceeds of the family vacation home. She lived in a care home and the interest earned from her savings covered her monthly expenses. Furthermore, Reinhard’s intention to distribute half of the proceeds from the sale to Eugene was clearly set out in detailed memos left by Reinhard before his death. Despite this, Justice Gomery of the Supreme Court of British Columbia found that the gift of the proceeds from Doreen to Eugene was unlawful due to section 20 of the Power of Attorney Act[2] which requires, among other things, that permissions to make gifts or loans under a Power of Attorney be expressly stated in that document. Despite Doreen’s financial stability and Reinhard’s clear intention that Eugene was to receive half the proceeds, the Power of Attorney was drafted in a way that did not permit Eugene to make gifts to himself from Doreen’s assets. As a result, he will have to wait until Doreen passes away to receive what, if anything, may remain from the proceeds (and if she did not have as much savings as she does, it is entirely possible that all of the proceeds of the sale could be spent on her care during her lifetime, leaving nothing for Eugene to inherit).
Takeaway
Derreth (Re) serves as a cautionary tale. Incapacity planning is difficult and can have unexpected pitfalls. Further, because these documents are sometimes considered “enduring,” the effects of any mistake in drafting can linger until the end of the incapable person’s life. Effective legal documents such as Powers of Attorney and Representation Agreements require careful drafting, a full understanding of the relevant law and a proper application of the law to the unique facts of each situation and the needs of each individual.
If you are considering creating a Power of Attorney or Representation Agreement, or are looking for more information regarding such documents, please contact Zachary Murphy-Rogers, Scott Stewart-Lee or any member of our Estates & Trusts group.
[2] Power of Attorney Act, RSBC 1996, c 370.
