Double-edged sword. This is one way to describe a power of attorney (POA). Many people think of this legal tool as a dangerous weapon and decide against preparing a POA. However, the practical benefits cannot be disputed.
Rather than avoiding a POA altogether, let’s talk about ways to turn this potential double-edged sword into a planning tool. You should sleep well at night knowing that your personal and business needs will be met should you become mentally or physically incapable.
You may be thinking this will never happen to you. You will never get into a car accident that may put you into a coma or cause a brain injury requiring months of medical care. But the reality is that it may happen to you. If it does, what happens to the business you have been working so hard to grow and prosper? A POA is there to address such situations.
As a small business owner, I know what it is like to be absolutely everything for your business…the office manager, the bookkeeper, the janitor, the receptionist; the list goes on and on. If something happens to you, who will have access to your business accounts? Who will pay your business’ bills? Who has the authority to deal with your suppliers and clients? Who will manage your staff? Who is the “boss” going to be if it can’t be you?
Whether your business is a sole proprietorship, partnership or private corporation (especially if you are the sole director and majority shareholder), these are matters you must think about. A POA allows an adult to grant another person (the attorney) the power to handle their financial and legal affairs. An enduring POA means the POA will remain in effect and usable once the adult becomes incapable. A specific POA is a Power of Attorney limited in subject matter (e.g. limited to certain real property) or in time (e.g. valid to a certain date). It is important to remember the attorney you appoint acts as your agent and their power is limited by the authority you give to them in the POA document.
A POA becomes more like a double-edged sword if your attorney abuses the powers you have given to them. Subject to some restrictions at law and the restrictions you impose upon your attorney, your attorney can act on your behalf in relation to your financial affairs just as you can. This means that unless your attorney manages your business matters (and personal matters) carefully, the value of your assets may decline. There is also a risk that your attorney will abuse their authority and use some or all of your assets for their own personal benefit or the benefit of others.
To lessen these risks, it is important to appoint someone you trust and who is dependable. If this person will be responsible for business matters, appoint someone who is knowledgeable in your business. You should also have a frank discussion with this person about assuming this important role for you because there is no point in choosing someone who will not assume the role. You also have the option of choosing more than one attorney and requiring either a unanimous or majority decision amongst multiple attorneys.
Speak to your lawyer about preparing your POA and the options available to you when granting powers to your attorney.