Know The Difference Between Your Power of Attorney & Your Executor
You may have heard of a power of attorney and an executor, but what do they mean? And are they the same thing? Well, yes and no. While both roles are essential in estate planning, they play different roles. One involves a document that gives someone else the ability to make legal decisions on your behalf.
While you are alive, this role is called a power of attorney. After you die, an executor helps make vital decisions.
Both a Power of Attorney & Executor Are Essential in Estate Planning
A power of attorney (POA) is a legal document that allows you to appoint someone to make decisions on your behalf. The role of the executor is to perform the deceased’s wishes and distribute their assets according to the will. Both positions are crucial in estate planning.
If you have both roles, it can be a good idea to have a POA appointed while you are still alive instead of leaving it up to someone else (your executor) after your death. This way, if something happens and they had no knowledge of your wishes regarding medical care or treatment, they would be able to step in immediately if necessary.
What is a Power of Attorney?
A POA is responsible for your financial affairs if you are still alive but unable to make decisions for yourself. For example, suppose you are going on vacation and want someone to help with things like paying bills, making deposits, and cashing cheques while you are away. You do not have to be ill or in a coma to give someone power of attorney.
You may want to assign a power of attorney for a wide range of purposes, such as:
- Making decisions about your health care
- Managing your finances, including paying bills and selling or buying property
- Making decisions about your child’s education and medical care
You can also give your attorney general powers over other aspects of your life, such as signing documents and taking part in court proceedings on your behalf.
A power of attorney can be as simple as a single page that you sign in front of a witness by an independent third party who can vouch for its authenticity. Or it can be much more complex and lengthy but still valid under the law if executed adequately according to the requirements set out in legislation in your province or territory.
What If I Do Not Have a POA?
If you become incapable and do not have a power of attorney appointment, the court could appoint someone to act on your behalf. For example, suppose you become mentally or physically incapable of making financial decisions following a critical illness. The court could select one of several people to act on your behalf.
- The court could appoint a family member: For example, it is likely that if you have children and they live near you, they would be able to take care of your affairs.
- The court could appoint a professional: A lawyer or accountant would act as your power of attorney.
- The court could appoint a lawyer: Lawyers are often recommended in power-of-attorney situations because they know how the system works and can provide valuable insight about what steps need to happen next for your estate planning needs.
In Canada, a valid power of attorney must register with the Office of the Public Guardian and Trustee (OPGT). The OPGT has established rules governing which types of controls are valid and how they can use them for someone who cannot conduct their affairs.
Types of Power of Attorney
A POA allows you to appoint someone as your agent or representative to look after your best interests when you cannot do so yourself. When you give someone a POA, they are authorized to make certain decisions for you. These decisions vary depending on the type of power of attorney you choose.
General Power of Attorney
A general power of attorney designates one person (the “agent”) who can take care of your finances and other matters if you become incapacitated. With a general power of attorney, you appoint someone to act on your behalf in your absence. It is not the same as a will or trust, which are documents that allow you to transfer property after death.
Special Power of Attorney
There are also special or limited powers of attorney that apply only to certain situations. For example, medical power of attorney grants someone the ability to make medical decisions for you if you are unable to make them yourself. A financial power of attorney makes someone else responsible for handling your finances but not your medical decisions.
What is an Executor?
The executor is responsible for performing the wishes of a deceased person. The will appoints the executor and, after probate, is responsible for paying debts and taxes, collecting assets, and distributing them according to instructions in the will.
As an executor, you are a fiduciary. Consequently, you have a legal duty to act in good faith and with the care of a prudent person in similar circumstances. In addition to following these rules, an executor is responsible for:
- Paying any debts or taxes that your loved one owed at the time of death
- Making distributions of their property according to their will (if they left one)
- Paying any funeral expenses
- Handling payments if your loved one owed any estate taxes or fees incurred by their attorney
Executors can be personally liable for not following these rules properly if anything goes wrong during the probate process.
Responsibilities of the Executor
An executor will gather assets and pay off debts, distribute property to beneficiaries, and file tax returns. If there is no will or other instructions regarding an estate plan, then the state typically appoints someone with similar responsibilities as an executor.
Executors are often responsible for paying off debts owed by their loved ones at death. Examples can include credit cards, mortgages, car payments, medical bills, or anything left unpaid when they passed away.
The executor also has several legal duties to fulfill when it comes to collecting property from people who inherit from your estate (for example, family members). These include providing inventories of all assets you own at the time of death plus any other documents related to how those assets were acquired (for example, marriage licenses).
Naming a POA and an Executor
Since it is essential to have a POA and executor, you also need to consider if you want to appoint one person as both. The person appointed as your POA while living can also be the executor. This person will be responsible for managing your financial affairs while you’re alive and dealing with your estate after death.
If you assign someone as your POA and executor, their duties become even more critical. These responsibilities can lead to stress for the person named for both roles. In some provinces, it is possible to name both an attorney in fact and an executor in one document known as a combined durable power of attorney/will (DPA/W).
In Canada, there are two main ways to create a Power of Attorney: the statutory option, which is free and easy but not very flexible, and the contractual option, which is more flexible but costs money.
The provincial legislation (the Personal Directives Act) governs the statutory option. You can find most forms online or at your local library. The downside is that these documents only apply within the province where you sign them. For example, if you moved from Quebec to Ontario and needed your POA revoked, it would not be valid anymore unless you created another one in Ontario.
The contractual option involves hiring a lawyer or financial planner who will prepare a customized document tailored to your needs. This option is valid anywhere in Canada and can include instructions about specific assets such as real estate.
Legal Requirements for Your POA and Executor
The legal requirements for a POA vary from province to province but generally follow these guidelines:
- The person granting power must be over 18 years old and have mental capacity at the time they sign the document
- The person giving control must understand what they are doing when they sign it
- The person with authority must accept that authority willingly
- The person granting power cannot appoint more than one agent (unless there are exceptional circumstances)
If you are unsure which to choose, talk to your life insurance agent, lawyer, or financial adviser. If you do not think you need one, that is fine, too. Just make sure to keep all your documents in a safe place so they do not get lost in case something happens down the road.
Conclusion
The Canadian government has a lot of different documents created to help in the event of your death. If you have family and children, someone you trust must be able to inform them about your wishes in case you were unable to do so yourself. Your power of attorney and executor are two different roles, but you want to ensure that they cover the same bases.
Understanding these two positions is crucial to achieving the best results for your loved ones. Keep in mind that each province could have different laws, so be sure to check with your province’s laws before finalizing anything.
Learn more about a POA and executor from the professionals at Hometown Life Insurance.
