During a recent webinar I gave on power of attorney for property, confusion among attendees was evident about the roles and responsibilities of an attorney under a power of attorney for property versus a trusted contact person (TCP). This article explains the differences between these two roles, some of the challenges of each role and what powers each has or doesn’t have.
Background and definitions
A power of attorney for property is a legal document in which one person (the grantor) appoints another person (the attorney or PoA) to act on their behalf in the management and administration of their financial affairs. On the grantor’s death, the power of attorney document becomes unenforceable.
The term “attorney” is confusing to those who automatically think that the attorney under a power of attorney must be a lawyer. It needn’t be, and the only conditions to be appointed as an attorney are that the individual(s) must have reached the age of majority and must be capable of managing one’s financial affairs. To avoid confusion, note that in some jurisdictions the legal term for attorney is “substitute decision-maker.”
Fortunately, less confusion arises with trusted contact person (TCP).
I correlate a TCP with an emergency contact. The scenario I reference is filling out a form at the dentist’s office that asks who to contact if something goes awry while in the dental chair.
The TCP is part of regulatory measures that came into effect on Dec. 31, 2021, and was established to help financial advisors when they’re concerned that clients are being financially exploited or demonstrating diminished mental capacity and unable to make financial decisions. For example, a client may exhibit memory loss, an inability to communicate their wishes or an unusually dishevelled appearance.
The TCP acts as a resource for the advisor and is someone they can discuss their observations with. Ultimately, the TCP helps protect the client’s financial interests and assets. Additionally, if an advisor is unable to contact or locate the client, the TCP may be able to assist.
While some dealers may have space for only one name on the applicable form, a client is permitted to choose more than one TCP. Further, while there is no requirement that the TCP be the age of majority, it should be someone who can be trusted, understands the client’s personal matters and knows how to contact the client and their family members and loved ones. A TCP should not be the client’s dealing or advising representative on the account.
TCP versus PoA
A TCP can’t make financial decisions on behalf of a client, meaning they can’t initiate or authorize transactions on the client’s behalf. Nor can they make account changes in any form or be given access to accounts and account information.
A PoA can do anything that the grantor (client) could do unless constrained in the power of attorney document and by provincial and territorial law. They may have the ability to authorize the purchase and sale of securities in an investment account.
Each provincial jurisdiction in Canada has legislation governing the powers of attorney, and the rules vary by province. Typically, the duty to act arises when the PoA has accepted the appointment or has acted in a manner consistent with the appointment. In some cases, the power of attorney document will specify a date or an event that triggers the appointment. An example of an event would be a capacity assessment by medical professionals confirming that the grantor is incapable of managing their financial affairs.
Overall, the PoA must act in accordance with a fiduciary standard and abide by the terms and conditions of the power of attorney document. These duties include but are not limited to the following:
- acting in the best interests of the grantor
- exercising reasonable care and skill in conducting the grantor’s affairs
- keeping records of all transactions and accounting for the grantor’s affairs
- ceasing to exercise their authority and duties if the power of attorney is revoked
A PoA typically cannot do the following:
- make a will on the client’s behalf
- change an existing will
- change the designated beneficiaries of any registered accounts (RRSP, RRIF, TFSA) or life insurance policies
- grant a new power of attorney to someone else
- provide gifts, unless allowed per the power of attorney document and authorized in specific jurisdictions, and the gift doesn’t impoverish the grantor
- co-mingle the grantor’s assets with their own assets (except for property that is registered jointly)
As with a TCP, a grantor can specify more than one PoA, and there can be PoAs for specific assets.
Nuances of the TCP and PoA selection process
A TCP does not assume the PoA role under a client’s power of attorney document. The PoA is specified in the power of attorney document, and such document will specify the conditions required for the PoA to commence acting in this capacity and what duties and powers the selected PoA has.
A client may designate that their TCP and PoA be the same individual. But an advisor should encourage a client to select a TCP who is not making decisions with respect to the client’s account.
Consider this example. A PoA conducts affairs on a client’s account, but the instructions are inconsistent with the client’s best interests. If the PoA and TCP are the same individual, then the advisor is constrained to share their concerns with an independent third party. Further, a TCP who is not the PoA may provide insight into the client’s support network and help mitigate such a situation.
So, while the TCP has a limited mandate and is unable to directly impact the financial affairs of a client, the indirect impact can be significant.
While the roles and responsibilities of a TCP and PoA are distinct, what isn’t is the characteristics these individuals must have. At a minimum, they must both be trustworthy and responsible.
Michael Kulbak, MBA, CPA, CMA, TEP, is principal of Kulbak Trust Solutions in Mississauga, Ont.