Who should manage your finances when you’re not able to? It’s a tough decision and one that should not be taken lightly.
Many aging parents default to their adult children. After all, who can you trust with such an important responsibility if not your closest family members? But are your kids really the right choice?
The responsibilities of a power of attorney
It’s important to understand that acting under a power of attorney is not a privilege, it’s a responsibility. It grants someone the power to act on your behalf if you become incapacitated, which can include making financial decisions, managing your investments, and filing your taxes.
But with great power comes great responsibility . . . and potential risks.
If you appoint someone who doesn’t have the skills, temperament, or ability to perform their duties, you could be setting them up for failure. If they don’t handle matters appropriately, you not only may not receive the care you need, but under the Criminal Code of Canada, they could actually be charged with a crime.
Theft
If an appointed individual uses money for their personal benefit rather than to act in your best interest, they could be charged with theft.
For example, in a 2019 court case, an adult child who had been appointed as her mother’s power of attorney pled guilty to theft after taking over $160,000 from her mother’s financial accounts for her own benefit. Instead of using the money to pay for her mother’s long-term care home, she spent it on gambling, her own living expenses, and an overseas trip.
The daughter was sentenced to six months imprisonment and three years’ probation.
Misappropriation of funds
Misappropriation of funds happens when a person with power of attorney does not act in the best interest of the individual who granted him or her this power. For example, if your attorney uses your money for personal gain, depletes bank or investment accounts, or sells properties or other assets without your knowledge or consent, it could be considered misappropriation.
Attorneys have a duty to keep good records to corroborate that they are acting in your best interests. If concerns are raised and they cannot produce documents such as financial, tax, or bank statements, it could be considered a red flag.
Fraud
In this context, fraud could include forging signatures, falsifying documents, or coercing the individual who appointed you as their attorney into a financial agreement that may be detrimental to them.
Is your adult child the right choice?
Parents often want to believe the best about their children. But take a step back and carefully consider your child’s personal strengths and skills before deciding if they are well suited to making important decisions on your behalf.
Here are four areas to evaluate:
Trustworthiness: Does your son or daughter act with integrity? Can he or she be trusted with money, particularly money that does not belong to them?
Communication skills: Is your son or daughter capable of communicating with your professional team - accountants, lawyers, doctors, investment advisors? Do they know when to use confidentiality? Will they be a source of conflict with other family members, or will they disseminate information wisely?
Money management skills: How well does your child manage their own finances? Are they financially independent, or do they often look to you for advice or support? If they struggle to manage their own finances, it’s unlikely they’ll successfully manage yours.
Organization skills: Does your child pay bills on time? Are they able to keep track of important receipts and financial documents? It is the responsibility of anyone acting under a power of attorney to keep accurate accounts and records for all financial transactions.
Wanting to entrust the things that are important to you to the people who are important to you is natural. However, getting the information you need and resisting the urge to act based on your emotions will help you make the right decision for your child and for yourself.
To learn more about how to plan for the ‘what ifs’ of retirement, attend our upcoming retirement seminar. You can register by clicking here.
David Popowich and Faisal Karmali are Investment Advisors with CIBC Wood Gundy in Calgary. The views of David Popowich and Faisal Karmali do not necessarily reflect those of CIBC World Markets Inc. This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc. Individuals are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.
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