Ensuring a formalized agreement is in place can avoid complications later
TORONTO, July 27, 2012 /CNW/ - Canadians are increasingly taking on the responsibility for managing the finances of a family member or close friend, with one in ten now looking after the finances of another, in addition to their own, finds a new CIBC (TSX: CM, NYSE: CM) poll conducted by Harris/Decima.
Key Poll Findings:
- One in ten Canadians are managing the financial affairs of an elderly, disabled or otherwise incapable family member or close friend
- 31 per cent of those managing the affairs of another have no formal legal agreement
- 74 per cent of Canadians see a benefit in having a professional provide advice on how best to manage the financial affairs of a family member or close friend
Making the situation even more difficult is the fact that one-third (31 per cent) of those managing the financial affairs of another are doing so without a formal agreement or document, such as a Power of Attorney.
"Since many financial activities involve personal decisions, it is logical that people often reach out to friends or family for assistance," says Jamie Golombek, Managing Director of Tax and Estate Planning at CIBC. "However, the reality is that most people don't have the time, knowledge or expertise required to manage another person's finances.
"This situation is made much worse when arrangements are informal. Decisions you would normally make may not be what the other person wants or expects. That is why it is very important that a formal estate plan, including a Power of Attorney that appoints someone to conduct financial transactions on your behalf, be created before anyone takes on the responsibility for managing the financial affairs of an elderly, disabled or otherwise incapable family member or close friend."
Mr. Golombek says there are two important considerations to take into account when appointing someone to manage your financial affairs should you become unable.
Make sure you choose the right person for the role
"It is important to carefully consider who you choose to manage your financial affairs," says Mr. Golombek. "They may be required to not only complete simple tasks such as paying bills and managing budgets, but also more complex transactions such as selecting investments, selling property, filing tax returns and accounting for financial transactions to name a few."
Although most people choose family and friends to manage their affairs because they bring a level of comfort in terms of trust and familiarity, the CIBC poll found that 74 per cent of respondents saw a benefit in having a professional provide advice.
Make it formal
"Managing the financial affairs of an elderly, disabled or otherwise incapable family member or close friend can be emotional as well as time consuming," notes Mr. Golombek. "However, given that one third of those managing the affairs of another are doing so without a formalized agreement, conflict can arise. When arrangements are informal, misunderstandings can occur and are not uncommon."
He cites an example of an elderly client who was having difficulty managing her finances so she asked for her eldest son to be added as a joint account holder on her bank account. However, without any formal documentation, her son, as a joint account holder, could potentially withdraw funds for his own personal use. Because she lives in a province where joint with right of survivorship applies (it doesn't in Quebec), upon her death, all the funds in the account would belong solely to him, possibly to the exclusion of her other children.
Mr. Golombek says that if, instead of making the account joint, mom had formally appointed her son and documented her intentions in a Power of Attorney, it would clearly outline that he could only use the funds for her expenses. Further, upon her death, the remaining account balance would be passed to the estate beneficiaries of mom's choosing, which might include all of her children.
Mr. Golombek recommends that Canadians have an estate plan that includes a Power of Attorney that clearly outlines the attorney's scope of responsibility.
"When making a Power of Attorney, you need to consider who is best equipped to carry out your wishes and specifically define the scope of responsibility and how funds are to be used. For your intentions to be known and executed, it's important to plan ahead. This will reduce uncertainty and conflicts later."
If you do take on a formalized role to manage someone else's financial affairs but are concerned you don't have the time or expertise to effectively carry out your role, you can hire a trust company, such as CIBC Trust, to act as an "Agent for Attorney". With an Agent for Attorney you can have the peace of mind of knowing the financial administration is being professionally managed, while you retain full decision-making authority.
A trust company can also fulfill the role of attorney. The CIBC Trust team manages client affairs in an unbiased and efficient manner, bringing expert tax, legal, financial planning, investment and banking resources to bear according to the specific needs and desires of each and every client. It may make sense to arrange for a trust company like CIBC Trust to be appointed as your attorney to make financial decisions and conduct transactions on your behalf.
More details on the benefit of a Power of Attorney for financial matters are available in CIBC Private Wealth Management's latest report, You've Got The Power! Planning for Incapacity which is the third of a series of reports on Estate Planning.
Results are based on a CIBC poll conducted by Harris/Decima, via teleVox, which surveyed 1,002 Canadians. The associated margin of error is +/- 3.1%, 19 times out of 20. Polling was conducted March 15 to 19, 2012.
CIBC Private Wealth Management meets the unique needs of high net worth clients through a full range of integrated advisory capabilities and solutions, including exclusive private banking services, customized financial planning and investment advice, trust and estate solutions.
CIBC is a leading North American financial institution with nearly 11 million personal banking and business clients. CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada, and has offices in the United States and around the world. You can find other news releases and information about CIBC in our Press Centre on our corporate website at www.cibc.com.