November 25, 2014

Two things got me thinking about power of attorney litigation.  I listened to a great program on CBC on Sunday, where the guests – an estate litigator in Toronto and an elder law specialist from the west – talked about the trend that many estate litigators have seen lately.  That is, would-be heirs no longer wait until the testator is dead to start fighting about the money.  More and more, the battleground over power and money happens while the person is still alive.

I also got caught up in the story of hockey player Jack Johnson, who named his mother as his attorney for property, and as a result, lost his hockey fortune to bad loans and what appeared to be self-dealing by his parents (these reported allegations are not proven in court).

It made me think of the perennial advice given to grantors choosing a power of attorney:  Choose someone that you trust.  Well, if you can’t trust your own mother, who can you trust?   I can say that when I survey the power of attorney litigation in our office right now, it did not happen because the grantor chose someone that he/she did not trust.  In my experience, almost without exception, grantors choose a spouse, sibling, parent, or child to be an attorney for property – and someone trusted without reservation by the grantor.   But choosing someone you trust, by itself, is not enough to prevent abuse, and not enough to prevent ugly power of attorney litigation.

– Don’t choose someone that you trust. Choose a trust company instead. This strikes me as an under-utilized option.  Some people resist paying for this service because it is something they believe that their loved one could do for free (keep in mind that if you do not specify in the POA document that the attorney cannot take compensation, the Substitute Decisions Act (“SDA”) says that he can).  We pay for all sorts of services that we could do ourselves.  We pay for the service because it makes life smoother and happier (like housecleaning) or because someone can do it better than us (like preparing a tax return or cutting our own hair).  Being someone’s attorney for property involves much more work than just writing a few cheques and balancing a chequebook.  There are potential minefields to trip up the average layperson – privacy issues, record keeping issues, and duties under the SDA that the average person does not understand or appreciate. Often, power of attorney litigation does not arise out of dishonesty, but out of innocent breaches of trust by an uninformed attorney or an attorney who received bad advice: Child A thinks that she has just saved probate fees by transferring the house to herself, while Child B thinks that Child A has just stolen the family home.

– Don’t just think just about whether you trust your attorney.  Think about the relationships between that attorney and the other people in your life, particularly when those folks are your future intended beneficiaries. You might trust your wife, but if your children think of her as the Wicked StepMonster, you might be setting her up for years of being fly-specked by your children if you name her as POA.  You might trust the child that you selected – but does that child have a healthy relationship with his siblings?

– If you choose a layperson, set her up for success by ensuring that she gets legal advice from a lawyer who specializes in estate and capacity law before activating the POA.  When you provide the POA document to your attorney, include instructions to your attorney to seek legal advice at the outset to be paid for out of your assets.  This is a small investment compared to litigation fees when things go wrong.

– Build checks and balances into your POA document.  Too often, the POA document becomes an “add-on” – the “would-you-like-fries-with-that” to the main event, the will.  But there is room to customize the document to ensure that there are protective mechanisms in place.  Consider naming two people instead of one (keeping in mind that sometimes this dynamic can lead to conflict). Consider building in accounting and/or reporting requirements.  Consider having the POA document specify who should get ongoing statements or information in the event of your incapacity and other information about how your money is being managed.

As an estate, trust and capacity litigator, I have learned that the relationship between love, trust and money can be a complicated and ugly thing. Incapacity planning and substitute decision making sometimes takes more than simply choosing someone that you trust.

Thanks for reading.