Canadian Powers of Attorney and United States Persons
Complications of appointing a US citizen or US resident under a Canadian power of attorney
We frequently encounter folks who wish to appoint a US citizen or a US resident as attorney under their power of attorney. Often folks wish to appoint a child who has moved to the US for work, or a spouse, sibling, or friend who lives in Canada but is a dual citizen. Unfortunately, there can be some complications that come with appointing a US citizen or US resident in one’s power of attorney. In this post, we will address some of those complications.
As we have discussed in a previous post, a power of attorney is a vital and powerful document that allows one to appoint someone else (one’s “attorney”) to take charge of one’s financial and legal affairs if one loses the capacity to do so for oneself. A power of attorney is, therefore, a critical component of any incapacity planning. Choosing who will be one’s attorney (and alternate attorneys) is an important choice that one should make carefully.
While trustworthiness is the most important selection criteria for an attorney, and suitability to the task (responsibility, reliability, comfort and skill with paperwork and financial matters) follows closely after that, there are other important considerations as well. This post will address one of these considerations – what if the proposed attorney lives or has citizenship or status in the United States of America?
If one selects a US resident attorney, one potential complication that can arise is investment management. If one has a Canadian investment portfolio and one’s attorney resides in the US, one’s Canadian investment advisor may not be permitted to take instructions from one’s US resident attorney. While there are options for addressing this, such as giving the US resident attorney the power to appoint a Canadian resident co-attorney to instruct the investment advisor, it is generally simpler for all involved to have a Canadian resident attorney appointed from the outset if possible.
Another potential complication involves US tax filing requirements imposed upon attorneys who qualify as “US Persons” including US citizens who do not reside in the US and non-US citizens who are residents of the US or have other status there (e.g. having a Green Card).
US Persons appointed as someone’s attorney are considered to have been given signing authority over the assets of the person who appointed them. The result of this is that if a Canadian resident with Canadian assets names a US Person as an attorney, that attorney is required to annually file a Report of Foreign and Financial Accounts (FBAR) if, at any time during the calendar year, the value of the Canadian resident’s Canadian accounts exceeds USD 10,000. This means one’s US Person attorney must disclose one’s Canadian assets to the United States Government on an ongoing basis. The disclosure requirements apply regardless of whether the attorney ever actually exercises authority under the power of attorney. Failure to file FBARs as required may also attract civil and criminal penalties for the attorney. There is an FBAR Reference Guide here (PDF) provided by the IRS that offers more detailed information.
There are options available to draft a power of attorney to limit the applicability of the FBAR rules. For example, one might include a provision setting out that the US Person attorney has no authority over one’s Canadian financial accounts until they provide written acceptance of such authority. However, while there are compromise options available to address some of the legal and practical challenges of appointing a US person, it is generally preferable for Canadian residents to avoid appointing a US Person as one’s attorney, at least for their Canadian property. If one must select a US Person, professional tax and legal advice should be obtained on both sides of the border before the appointment is made.
In our next post, we will address a different consideration relating to one’s choice of attorney – we will flag a vital tax consideration relevant to shareholders in Canadian privately held companies. In the meantime, if you have any questions about powers of attorney or any other estate or incapacity planning matters, please let us know.
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Photo by Raúl Nájera on Unsplash