Revoking an Enduring Power of Attorney
By executing a Power of Attorney, a person (the “Donor”) may appoint someone else to manage the Donor’s legal and financial affairs. In Alberta, the Powers of Attorney Act governs how Powers of Attorney can be created, used, and revoked. The traditional form of a Power of Attorney comes into effect immediately upon its creation, but then is automatically terminated if and when the Donor loses mental capacity. To avoid that problem, a commonly used estate planning tool is an Enduring Power of Attorney (“EPA”), which can either come into effect immediately after being created and continue in effect once the Donor loses mental capacity, or it can stay dormant and only come into effect only when the Donor loses mental capacity.
A simple way of describing an EPA is that it essentially allows another person appointed by the Donor to step into the Donor’s shoes at a prescribed time to manage the Donor’s legal and financial affairs. The attorney can be appointed with very broad or limited powers. The critical question becomes who decides when the Donor loses capacity?
There are 2 ways that loss of capacity is addressed:
- A Donor can put a specific direction in an EPA that appoints a specific person to decide when the Donor has lost capacity. For example, a Donor might appoint the Attorney, or family doctor, or any other person the Donor trusts to make that decision.
- If the Donor does not make a specific appointment, the Act states that a loss of capacity will only be recognized if 2 medical practitioners make that declaration in writing.
Can a Donor revoke or create a new EPA?
To revoke an EPA, the Donor must still have mental capacity to do so. The test for revocation is the same as creation – the Donor must be mentally capable of understanding the nature and effect of the revocation. Said another way, if an EPA has come into effect, a Donor who has lost mental capacity has no authority to revoke, change, or create a new EPA. The existing EPA will remain in force and the appointed attorney will manage the affairs of the Donor.
- Who can determine loss of capacity; and
- Potential uncertainty in what is required to create or revoke an EPA.
Summary of Facts:
Jack (the Donor) created an EPA in 2008 appointing his wife and 3 kids as joint attorneys. The EPA was to come into effect only upon Jack’s mental incapacity.
In 2014, at age 85, he separated from his wife after 53 years of marriage. He then embarked upon a series of odd misadventures, which included paying someone $25,000 to find him a new wife, being introduced to a new woman, and then after spending 3 weekends with her, Jack announced intentions of marriage, while assuring her that if things didn’t work out he would pay the woman $100,000.
Urged by his children, Jack agreed to see a psychologist who found medium level dementia and severe deficiencies in mental function. Jack was displeased with this finding, and therefore attended another clinic where a neurologist determined that he suffered from only mild cognitive impairment and memory loss, but no dementia.
The EPA stated that Jack’s physician was appointed to make the declaration of incapacity. The children went to this physician and got such as a declaration. Now declared mentally incapable, Jack’s EPA came into effect and his joint attorneys began overseeing his affairs. Jack was not made aware of this fact. A few weeks later, relying on the neurologist’s assessment that he maintained capacity, Jack hired a lawyer, revoked his 2008 EPA, and created a new one, which appointed his brother as Attorney.
Jack’s children argued that because of his erratic and concerning behavior, he was shown to have lost mental capacity, which meant that the 2008 EPA was active, Jack did not have the power to revoke it, and that the new EPA was invalid. Jack argued that, while he may have some reduced cognitive abilities, he met the test to draft an EPA, in that he understood the nature and effect of both revoking the old EPA and creating the new one. He also said he had good reasons to remove his ex-wife and children as his attorneys because they were treating him like a child, not paying him money that they owed to him, and he did not trust his ex-wife or children to manage his affairs, but trusted his brother to be his attorney.
The Court made it clear that a Donor has the mental capacity of executing an EPA if the Donor understands that:
- The attorney would be able to assume complete authority over the Donor’s affairs;
- The attorney could do anything with the Donor’s property that the Donor could have done;
- The authority would continue if the Donor became mentally incapable; and
- In the event the Donor became mentally incapable, the EPA would become irrevocable without confirmation by the Court.
Jack met the test, and therefore his revocation of the old EPA and creation of the new EPA was valid. However, the Court also chose to address the concerns of the children. While stating that the ‘why’ of Jack’s reasoning to revoke the first EPA was unimportant and the 4-part test was all that applied, the Court went on to consider and rule that Jack’s decisions in revoking his old EPA in favour of a new one appeared reasonable and rational. This comment opens the door for Courts to expand the 4-part test to actually scrutinize a Donor’s decisions.
Invitation for Discussion:
At Shea Nerland LLP, our tax professionals are leaders in providing comprehensive advice on the issues of wealth management and estate planning. We focus on planning for wealth accumulation, wealth distribution and wealth protection, as well as succession planning and governance. Where there is controversy, our litigation team assists in estate litigation matters that arise in cases surrounding inheritances, disputed wills, powers of attorney and related matters, and can assist you to resolve disputes creatively and effectively.
If you would like to discuss this blog in greater detail, or any other business litigation matter, please do not hesitate to contact Norm Anderson or Kerry Holmes or one of the lawyers in the Litigation or Tax and Estate Planning Group at Shea Nerland LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.