Who should handle your finances when you’re no longer able to? It’s a difficult decision and one that should not be taken lightly.

 

Many aging parents believe their adult children are the natural choice. 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 duties of a power of attorney

It’s important to understand that acting under a power of attorney (POA) is not a privilege, it’s a big job. It grants someone the ability 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 a person who doesn’t have the skills, personality, or capacity to take on the role, you could be setting them up for failure. If they don’t handle matters appropriately, you may not receive the care you need. Additionally, under the Criminal Code of Canada, they could actually be charged with a crime.

Theft

If an appointed individual uses your money for their personal benefit, they could be charged with theft.

 

For example, in a 2019 court case, a woman who had been appointed as her mother’s POA pled guilty to theft after using over $160,000 belonging to her mother for her own benefit. The money was designated to pay for her mother’s long-term care home; however, she spent it on gambling, her own living expenses, and an international trip.

 

The daughter was sentenced to six months in prison and three years’ probation.

Misappropriation of funds

When a person with POA does not act in the best interests of the person who designated them, it may be considered a misappropriation of funds. Examples include using the individual’s money for personal gain, depleting bank or investment accounts, and selling properties or other assets without their knowledge or consent.

 

Attorneys have a duty to keep accurate records to corroborate that their decisions were made in your best interest. If they cannot produce documents including tax, financial, or bank statements, it could be considered a red flag.

Fraud

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.

 

Depending on the circumstances, penalties for fraud in this context could include jail time and major fines.

Is your adult child the right choice?

Before making this important decision, step back and carefully consider your child’s personal strengths and skills. Assess if they are well suited to making financial decisions on your behalf. 

 

Here are four areas to evaluate:

 

Trustworthiness: Does your son or daughter act with integrity? Can they 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, which may include accountants, lawyers, doctors, investment advisors? Can they be trusted to keep sensitive information confidential? Will they cause conflict with other family members, or will they disseminate information to loved ones wisely?

 

Money management skills: How well does your adult child manage their own finances? Are they financially independent, or do they often look to you or others for advice or support? If they struggle to manage their own money, it will likely be a stretch for them to 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 POA to keep accurate accounts and records for all financial transactions.

 

It’s natural to want to entrust the things that are important to you to the people who are important to you. However, resist the urge to act based on your emotions and make the decision that is right for you and for your child.

 

To learn more about how to plan for the ‘what ifs’ of retirement, attend our upcoming retirement seminar. You can register by clicking here.