Can power of attorney help you manage your parents’ debts?Chantal Gingras
When a person struggles to manage their finances, someone else may obtain power of attorney to assist them or to manage their finances for them. This may be the case for an older person who, even though they are still lucid, are unable to manage their budget. When that person has children, power of attorney is generally granted to one of them, provided they are at least 18 years of age.
What is the power of attorney?
Power of attorney is a legal document that a person (the donor) signs to give another person (the attorney) authorization to carry out certain actions on their behalf.
Power of attorney can be customized to include specific and singular tasks. It may also be more general to allow the agent to manage the principal’s money and estate.
You can appoint power of attorney yourself by downloading a kit:
We recommend, however, having your power of attorney document signed in the presence of a lawyer or a notary to ensure its validity. This will protect you against possible complications.
In Ontario, power of attorney is automatically void if :
- the donor is declared mentally incapable by a court; and
- the attorney held a non-continuing Power of Attorney for Property.
Once the donor is declared mentally incapable, the non-continuing Power of Attorney must be replaced by a Continuing Power of Attorney for Property (CPOA).
In the event that the donor has granted a CPOA before being declared mentally incapable, that power of attorney will remain in effect.
The same principle applies in Quebec. Power of attorney is automatically void if the donor is declared mentally incapable by a court. The Protection Mandate takes effect from this moment on.
How can power of attorney help you manage your parents’ debts?
If your mother or father grants you power of attorney, you are authorized to act as their attorney. This means that it’s your job to make financial decisions on their behalf.
These decisions include day-to-day banking, selling property, and debt repayment.
In all cases, the first step involves collecting all relevant documents. Make a list that includes
- Bank accounts;
- Other assets (house, car, etc.); and
Next, make a list of all possible sources of revenue:
- Private pension plan
- Canada Pension Plan
- Ontario Guaranteed Annual Income System
- Quebec Pension Plan
- Old Age Security pension
- Guaranteed income supplement
- Registered Retirement Income Fund (RRIF)
- Survivor’s pension
- Rental income
Sources of revenue must be sufficient to support your parents and repay their debts. If they are insufficient, you must make certain decisions in their best interest.
Helping your parents settle their debts
You have obtained power of attorney to manage your parents’ finances. Their incomes are low and not enough to repay their debts. As their attorney, it is up to you to find a solution.
There are two common solutions, but each comes with disadvantages.
1- Sell some assets
To sell assets, your parents must, obviously, already have assets. If this is the case, the asset must generate profit upon sale.
Otherwise, this solution will not solve the problem.
2- Pay some costs yourself
This solution means that you will make sacrifices to help your parents. This is generous of you, but depending on your situation, you may jeopardize your own finances.
A third solution is also available: Meet with a Licensed Insolvency Trustee (LIT) at Ginsberg Gingras.
As an attorney, you can explain your parents’ situation to the LIT. The LIT will take the time to listen to you and get a complete picture of the situation. If applicable, the LIT will explain how a consumer proposal or bankruptcy may enable you to settle your parents’ debts1.
In either case, your parents’ needs will be taken into consideration. The terms of the agreement will be set to preserve their dignity and ensure they benefit from a good quality of life.
As an attorney, remember that power of attorney does not make you responsible for your parents’ debts. As long as you are not a co-signatory to their debts, your parents’ creditors have no recourse against you.
1In general, a power of attorney allows you to file a consumer proposal or bankruptcy on behalf of the donor. However, the validity of the power of attorney depends on its content. This is why you should consult a lawyer or a notary to make sure that the document is consistent with the law.