Estate Planning: What to do when a power of attorney has no power
Written by Glenn Szlagowski- Financial Advisor and Cheryl Butler, CFP, Financial Planning Advisor
What is a Power of Attorney?
According to the Government of Canada1, “a power of attorney is a legal document that you sign to give one person, or more than one person, the authority to manage your money and property on your behalf. In most of Canada, the person you appoint is called an “attorney”.
We often hear claims that powers of attorney (POA) can do or sign anything on behalf of another person. That statement is not quite accurate. It is very important to note that a POA may have finite powers that may not be equivalent to that of the grantor. For instance, a POA cannot designate a beneficiary or change an existing beneficiary for a registered plan. This could have significant tax or legal consequences if the POA is attempting to set up a new registered plan (e.g. RRSP, RRIF, TFSA, etc.).
In the absence of a beneficiary or successor annuitant, the beneficiary, by default, would be the grantor’s Estate where it could be subject to provincial probate fees. If, for example, you use a TFSA, in the case of death, the TFSA is collapsed and goes to the Estate. Probate fees will have to be paid, and the surviving spouse will not be able to put the money into their own TFSA except for the relatively small (currently $5,500) annual TFSA contribution limit.
However, if there is an existing account and you will be exercising a POA, it is best to ask the institution holding your registered plan whether the beneficiary designation is attached to the plan/account or to individual investments. If it is attached to the plan/account, then you may be in luck. It may be possible to transfer-in TFSAs from other financial institutions, or even make new contributions in the case of TFSAs or RRSPs, using a POA while utilizing the existing beneficiary designation.
Do you have accounts or investments issued by a bank or credit union domiciled in another province in Canada? If so, there are some potential landmines that can be an unpleasant surprise. For instance, if you have a POA that was created outside the province of British Columbia, and you wanted to exercise that POA, you may run afoul of an arcane piece of provincial legislation. For example, if you need to exercise an out-of-province POA to transfer an RRSP, RRIF, or TFSA, you will be required to supply the financial institution in British Columbia with a “Certificate of Extrajurisdictional Solicitor”2. Your lawyer must complete and certify this document each time you need to exercise a legal POA in British Columbia. This process takes time and lawyers at $400.00 per hour are not inexpensive.
Now, we can’t put all the blame on British Columbia. There is a credit union in Saskatchewan that will also not transfer a registered plan using a POA without a lawyer’s re-certification of the original POA document. Even here in Ontario, many financial institutions refuse to recognize a general POA and will not accept its instructions. Although your financial adviser will go to bat for you, in some extreme cases, your lawyer may have to apply legal pressure to enforce a valid POA document.
You can avoid many of these issues by opening up a nominee account at a securities dealer. In using this type of account, it’s the nominee “container” that has the beneficiary designation. Even if you have to change the investments, the beneficiary always stays the same. In other words, the beneficiary designation is attached to the container holding the investments, not to the individual investments in the container.
Just as it is important to buy life insurance before you die, it is equally important to structure your financial affairs for estate planning purposes before an accident or a physical or mental health decline renders you incapable.
Need help with setting up your banking and client name GIC accounts for estate planning purposes? Please contact me at (519) 744-3020 or at firstname.lastname@example.org for more information.