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POA Weekly – Week 11: What are a Lawyer’s Obligations to the Grantor of a Power of Attorney?

The granting and drafting of a POA must be carefully considered.  A CPOAP is a powerful document that permits an attorney to do virtually anything on the grantor’s behalf in respect of property that the grantor could do if capable, except make a Will.[1]  In other words, an attorney could mortgage or sell a grantor’s home without the grantor’s knowledge or consent, notwithstanding any fiduciary duty attached to the power granted.

A grantor should consider carefully the choice of attorney, whether there should be more than one attorney, and should be cognizant of any predisposition to a relationship of undue influence.

In avoiding POA conflicts and litigation, it is critical to carefully consider unique family dynamics and implement safeguards to prevent abuse based on the financial and life circumstances of the grantor.  Tailoring the POA to the grantor’s needs necessarily includes discussion regarding the family’s circumstances, the age of the proposed attorney, a possible substitute attorney, whether it is appropriate that there be more than one attorney, what are the grantor’s needs and wants should the grantor become incapable?  Who can be trusted to act as the grantor’s attorney?  What compensation will the attorney receive?  How is the compensation to be calculated?  Is the grantor familiar with the SDA legislation?  Is the attorney sufficiently familiar with the SDA legislation?

A great deal of POA litigation, particularly amongst siblings, could be avoided if proper advice is given to attorneys so that they are made aware of their very strict fiduciary duties, obligations and limitations.  Quite often attorneys are not aware of their statutory obligations in acting in accordance with the guidelines provided by the SDA.

Accountability may, in certain situations, be better achieved where there are two or more jointly appointed attorneys.  Of course, this is dependent on the circumstances of the grantor, but would ultimately provide a “checks and balances” system, so to speak, to help to prevent abuse where there might be vulnerability to abuse.  Having more than one attorney also alleviates suspicions by other family members and makes the actions of the attorneys more transparent.

Similarly, the prudent drafting lawyer, when taking instructions from a grantor giving a POA takes the time to assess whether or not there are any family members who might be more appropriately suited to assuming the role of an attorney, particularly where there is a friend, neighbour or caregiver that has taken steps to obtain the POA of a particular person – advice should be given to the grantor and careful, detailed notes taken.

Consideration should be given as to whether a capacity assessment should be recommended and ultimately conducted.  The issue of incapacity necessarily raises the issue of exploitation of vulnerable persons.  Many older adults can be predisposed to being vulnerable, if for example, dependent on another for certain necessities of life.  Such dependencies may be for reasons of physical or mental disability, or simply that one is suddenly faced with having to look after their own affairs.  Where a fiduciary relationship between two persons exists in the legal sense, there exists a relationship of trust or confidence which gives rise to an equitable duty of faithfulness, fidelity and loyalty.

In a British Columbia Supreme Court of Canada case, Hodgkinson v. Simms,[2] the dissenting Judges, Sopinka and McLachlin, considered the notion of “vulnerability” in the context of fiduciary relationships.  This very lengthy case raises issues concerning whether a fiduciary duty arises and what is a fiduciary duty.  According to Sopinka and McLachlin JJ, who refer to the judgment of Wilson J, in Frame v. Smith,[3] at page 136 concerning the meaning of vulnerability, the court said:

…the scope for the exercise of…discretion or power” in the fiduciary and to the power of the fiduciary to “unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.

Wilson J., also referred to the beneficiaries as being;

…at the mercy” of the fiduciary…Vulnerability, in this broad sense, may be seen as encompassing all three characteristics of the fiduciary relationship mentioned in Frame v. Smith (set out below).  It comports the notion, not only of weakness in the dependent party, but of a relationship in which one party is in the power of the other…vulnerability does not mean merely “weak” or “weaker” it connotes a relationship of dependency, and “implicit dependency” by the beneficiary on the fiduciary.

Wilson J., in Frame v. Smith identified the following characteristics of a fiduciary relationship:

  1. The fiduciary has scope for the exercise of some discretion or power;
  2. The fiduciary can unilaterally exercise that power or discretion so, as, to affect the beneficiary’s legal or practical interests; and,
  3. The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretionary power.

The decision in Re Koch,[4] is a clear illustration of how “vulnerability” may arise in respect of physical circumstances rather than mental.  This decision also demonstrates that “vulnerability” can exist whether or not, there is a fiduciary relationship.  Re Koch is an appeal case from the Consent and Capacity Board.  An excerpt from Justice Quinn’s decision:

The assessor\evaluator must be alive to an informant harbouring improper motives. Higgins should have done more than merely accept the complaint of the husband, coupled with the medical reports (the shortcomings of which are chronicled above), before charging ahead with his interview of the appellant.  Since the parties were separated and represented by lawyers, Higgins must have realized that matrimonial issues were in the process of being litigated or negotiated and that a finding of incapacity could have significant impact on those procedures.  He should have ensured that the husband’s lawyer was aware of the complaint of incapacity. More importantly, Higgins should not have proceeded to interview the appellant without securing her waiver of notice to her lawyer.

The physical impairment suffered by Ms. Koch in these proceedings was Multiple Sclerosis.  Vulnerability is not necessarily limited to the elderly or those with physical or mental impairments, but can also arise as a result of other circumstances.

Justice D. Brown noted the impact of POA litigation on vulnerable grantors in the case of Baranek Estate:

The so-called “battle of competing powers of attorney” is emerging as a growing area of litigation.  This is a most unhealthy development.  I suspect that when the Legislature passed the Substitute Decisions Act back in 1992 it intended to put in place a legal framework which would protect the affairs of the vulnerable elderly, not spawn a new breed of litigation which would see the hard-earned money of the vulnerable being exposed to claims for the payment of legal fees incurred by those whom they had appointed to protect their interests.   .  . . I am signaling that the inter-attorney litigation which erupted in this case is symptomatic of a much larger problem which, as Ontario’s population ages, risks turning into a very serious social issue.  Indeed, I think the time may have arrived for the Legislature of this province to look into this problem of litigation involving competing powers of attorney, especially involving subsequent powers of attorney made during the latter periods of a person’s life when they are vulnerable to pressure, in order to see whether new protections are required to ensure that the assets of the vulnerable are used for one purpose only – the satisfaction of the needs of the vulnerable elderly while they are alive.[5]

[1] Ibid at s. 7(2).

[2] Hodgkinson v. Simms, [1994] 3 SCR 377.

[3] Frame v. Smith, [1987] 2 SCR 99 at para.136.

[4] Re Koch 33 O.R. (3d) 485.

[5] Baranek Estate 2010 ONSC 6375 at para. 6.

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