Have You Drafted a Power of Attorney?
In these unsettled times, it’s the sign of a smart business owner to expect the best but prepare for the worst. What will happen to your business if you are unavailable due to any circumstance? Perhaps you are a Reservist and get called into active duty, for example.
By drafting a Power of Attorney, you will be giving someone the legal right to look after your business affairs if you are unavailable, away, mentally incapacitated, or otherwise unable to make business decisions.
Just as many individuals postpone writing a will, many business owners avoid the step of drafting a Power of Attorney. Both appear to have a superstitious belief that the act of preparing for potential problems will attract misfortune.
When we apply the clear light of reason, we all know that writing a will doesn’t imply imminent death and drafting a Power of Attorney doesn’t suggest we’ll be unable to operate our businesses. Both are simply evidence of good planning.
What if an accident or an illness causes you lose the mental capacity for a period of time? Without a Power of Attorney, your family, colleagues and the courts will be pitted against one another trying to straighten things out. Advance planning will minimize the problems that will arise later.
Alternatively, perhaps you are planning to be away from your business for an extended period. It’s not something we like to consider, but in the extended absences of an owner, the potential for employee fraud or theft increases. You want someone in charge who has your best interests at heart.
Naturally, you will want to consult a lawyer to discuss your unique situation. However, the following considerations are likely to be applicable in most cases:
1. When you draft a Power or Attorney, you must be “of sound mind.” Powers of Attorney can be revoked or modified, but again, you must be deemed to be of sound mind. Documents drafting or amending Powers of Attorney must be witnessed.
2. By drafting a Power or Attorney, you are giving the “donees” the legal right to carry out transactions on your behalf. In most areas, you can stipulate the powers that you are allocating. Typically, Powers of Attorney include the right to sell or purchase real estate and other assets, the right to make payments of bills and debts, and the right to manage investments of various sorts.
3. Typically you can identify two people to have power of attorney, as well as appointing a substitute in case something happens to one of the first two. Some advisors recommend appointing three donees to work jointly in the management of your affairs. Ideally, one donee should be a family member or friend who has your best interests at heart. The other should be someone who is connected to the business and who is familiar with day to day operations. The third recommended donee is the accountant who handles the company’s books.
4. When drafting the document, be very clear what powers you are giving the donees. Avoid “gray areas” or areas that could be open to interpretation.
5. Make sure that at least one of your donees knows where the Power of Attorney document is kept.
6. In most areas, Powers of Attorney can be Continuing or Limited. Continuing Powers of Attorney usually take effect from the date of signing and remain in effect after a person becomes incapacitated. Limited Powers of Attorney give the donee authority to act only under certain circumstances. Limited powers could include real estate transactions, complex investments like term deposits, RRSP contributions, and so on.
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