When one is appointed as an attorney under a power of attorney document that has been put in place by another individual (the “donor”) and acts as an attorney for the donor, one is acting as a fiduciary in relation to the donor. This means that one is subject to the associated duties, restrictions, and potential liabilities of a fiduciary.
People frequently appoint family members, often adult children, as their attorney or alternate attorney. One relatively common question that can arise for an attorney, particularly an attorney who is charged with managing the affairs of in incapacitated parent, is “can I buy the house my incapacitated parent is no-longer able to live in?”
The answer to this question is relatively simple; unless the power of attorney document that appoints an attorney expressly allows that attorney to do so, the attorney is barred from purchasing the house. This is due to Section 27 and Section 27.1 of BC’s Property Law Act and the common law relating to fiduciary duty.
Sections 27 and 27.1 of the Property Law Act specifically address real property. Section 27 of the Property Law Act states:
A sale, transfer or charge to or in favour of himself or herself by an attorney named in a power of attorney, of land owned by the principal and purporting to be made under the power of attorney, is not valid unless the power of attorney expressly authorizes it or the principal ratifies it.
Section 27.1 of the Property Law Act states:
(1) In this section:
“agreement” means an enduring power of attorney made under Part 2 of the Power of Attorney Act;
“attorney” means a person named in an enduring power of attorney as an attorney.
(2) A sale, transfer or charge to or in favour of an attorney by the attorney of land owned by the adult who made an agreement, and purporting to be made under the agreement, is not valid unless the sale, transfer or charge is expressly authorized by that agreement.
In addition to these sections of the Property Law Act, British Columbia courts have also made it clear that the common law relating to fiduciary duty generally forbids self-dealing, such as an attorney buying or otherwise acquiring the assets of the donor.
For example, The Honourable Madam Justice B.L. Fisher in McMullen v. Webber et al, 2006 BCSC 1656 states:
It is well established that the attorney acting under a power of attorney is bound to the duties enunciated on the face of the instrument granting the power. …
It is also well established that the relationship between the attorney and the donor is a fiduciary one. …
In most cases involving allegations of a breach of duty regarding the use of a power of attorney, the issues stem from transactions where property was transferred from the donor to the attorney. Under s. 27 of the Property Law Act, any such transaction is not valid unless the power of attorney expressly authorizes it or the principal ratifies it. An unauthorized transaction will constitute a breach of fiduciary duty despite good intentions by the attorney…
Justice Fisher’s judgment cites Egli v. Egli, 2004 BCSC 529, in which The Honourable Madam Justice Garson states:
the exercise of a power of attorney is always subject to the fiduciary obligations of the attorney … the power of attorney may only be used for the benefit of the donor unless the attorney’s self-benefit is done with the full knowledge and consent of the donor.
It is the attorney’s duty to use the power only for the benefit of the donor and not for the attorney’s own profit, benefit or advantage … The attorney can only use the power for his or her own benefit when it is done with the full knowledge and consent of the donor … I am not aware of any authority that detracts from this principle in circumstances where the benefit is conferred on family members.
As one can see from these selections, an attorney is generally constrained, not only to refrain from self-dealing, but also from applying the assets of the donor for the benefit of others, including spouses and adult children of the donor. This can lead to complications for an attorney who often wants to look after both the donor and, for example, the donor’s spouse or dependent adult child.
Because of these restrictions imposed on attorneys by default, if one wishes to ensure that one’s attorney will be able to use one’s assets to benefit one’s spouse, children, other family members, caregivers, or even charities to which one regularly gifts, one should take care in putting one’s power of attorney in place. The document should be customized to make it clear precisely who your attorney may allow to benefit from your assets, and what kind of benefits those individuals may be permitted to enjoy.
Failure to attend to these kinds of considerations is one of several examples of why do-it-yourself or off the rack powers of attorney may lead to unexpected difficulties for one’s family down the line.
Similarly, if one finds oneself needing to act as attorney for an incapacitated friend or family member, one should consider seeking preliminary legal advice before actively taking on the role. A prudent attorney will want to minimize the risk of personal liability. Being alert to the duties imposed by their fiduciary role is a good place to start. Checking in with a lawyer with the relevant knowledge to get one started on the right track, or to get advice before making a significant decision that affects the donor, can save an attorney a great deal of trouble (and expense) down the road.