Unexpected incidents can happen anytime, and the recent coronavirus outbreak in China has provided a stark reminder of that. As contagion concerns grow globally, there is likely to be prolonged stock market volatility. However, apart from its effect on markets, the impact of an unexpected event can lead to much more pressing concerns.
One of the most important but overlooked facets of risk management is planning for incapacity, and this can be done by creating a power of attorney.
What is a Power of Attorney?
In simple terms, a power of attorney is a legal document in which one person (the donor) appoints another to act on his or her behalf.
Two mandatory requirements in order for a Power of Attorney to be Valid
It should be in writing and signed by the donor in the presence of one or more witnesses, subject to the requirements of provincial laws.
The donor should have reached the age of majority in the jurisdiction where he or she lives, and have the requisite mental capacity while signing the POA.
Types of Power of Attorney
In general, there are three types of power of attorney to address your concerns upon incapacity.
1) A Non-Continuing Power of Attorney for Property
This is to ensure that your property is protected and taken care of in specific situations for a set period of time. For example, when you are out of the country, you can outline the tasks designated to your attorney and the duration of time for which they will represent you. Unexpected incidents like travel restrictions and overseas quarantines would therefore not impact important events, such as the closing day for your home.
One thing to note, however, is that a non-continuing power of attorney is automatically revoked if you become mentally incapacitated. To address this, it is important that you have a continuing power of attorney.
2) A Continuing Power of Attorney for Property
This type of POA authorizes another person or agent to act on your behalf for financial matters, if you become mentally or physically incompetent.
If you suffer a sudden stroke, and you are not able to act on your own behalf, your attorney can:
- Get access to your bank accounts to pay your bills
- Manage your investment accounts
- Apply for benefits for which you may be entitled
- Collect pension and other incomes to which you are entitled
- Make sure your property is protected
A power of attorney for property ceases to be effective upon one’s death. The attorney is not able to manage the estate of a person, unless the attorney is also appointed as the executor of the estate.
3) Power of Attorney for Personal Care
This type of POA delegates decisions about your personal care if you were to become incapable of making these decisions for yourself. This person is not authorized to make property or financial decisions.
For example, if you were to suffer a sudden stroke and become incapable of caring for yourself, your attorney for personal care would work together with your attorney for property to ensure that you have the financial resources to pay for the long-term care facilities or services put in place.
I recommend speaking to your advisor or lawyer to begin the process of creating a power of attorney. The peace of mind that it can provide, especially during uncertain times, is well worth the time and effort of putting it in place.