How to Pay Yourself as Power of Attorney in Ontario
Serving as a Power of Attorney (POA) for someone in Ontario entails tremendous responsibilities, especially when it comes to cash. Many actors ask if they may legally compensate themselves for their efforts. The answer is true, but precise criteria and best practices must be followed to ensure openness and equity.
In this article, we'll go over how to pay yourself as Power of Attorney, the legal framework in Ontario, common circumstances, and practical advice for handling this role properly.
Understanding Your Role as Power of Attorney
First of all, let’s determine what duties and powers a Power of Attorney (POA) has in the region of Ontario. A POA provides one with legal capacity to make decisions for the grantor who appointed the agent. It involves issues such as banking, paying of bills, investment management and even disposal of the investments.
Your foremost duty has to be to act in the best interest of the grantor upon formation of the agency relationship and thereafter, do as specified in the POA document.
There are two types of Power of Attorney in Ontario:
- Power of Attorney for Property: This empowers you on financial and legal issues.
- Power of Attorney for Personal Care:This concerns health care decisions and cannot be negotiated for.
To pay yourself, we are focused on the Power of Attorney for Property, as this is where financial matters come into play.
Can You Pay Yourself as Power of Attorney?
Yes, you can pay yourself as Power of Attorney in Ontario, but you have to do so legally with much observance to the law. The law permits compensation; nonetheless, one needs to understand that the amount and payment options should be declared in the POA document.
Consequently, if you do not find any information on compensation in the document you are working with, you do have the legal right to get paid following the compensation rates defined in the Trustee Act of Ontario. However, this compensation should be reasonable based on the work that is performed for the grantor.
Determining Fair Compensation
- Outlined in the POA Document
The least complicated situation is where the POA document detailedly states how you will be paid on your investment. There are instances where the grantor may state that he or she is willing to pay per hour or per flat rate or per percentage of the estate. These instructions should be followed to the letter if you are to receive the right compensation.
- Trustee Act of Ontario
Where the POA document is silent on compensation, then the matter is governed by the Trustee Act. This act allows POAs to claim a reasonable amount, typically calculated as follows:
- 2.5% on capital receipts: This refers to any money or property that you manage or collect on behalf of the grantor.
- 2.5% on capital disbursements: This covers payments made from the grantor’s funds for things like bills or investments.
- Annual care and management fee: Typically, a 0.4% annual fee is applied to the average value of the grantor’s assets under your management.
This method ensures you’re fairly compensated for the time, effort, and expertise you contribute to managing the grantor’s financial affairs.
- Court-Approved Compensation
In some special situations though there might be disagreement on the amount that you are willing to pay or be charged, the court can step in and decide on a reasonable fee. This often forms the last solution to the problem as it involves the courts and legal expenses. However, it can be done so only if the family members or other stakeholders contest the sum of compensation you have claimed.
Record-Keeping and Transparency
When paying yourself as Power of Attorney, meticulous record-keeping is essential. You must maintain detailed records of all transactions you make on behalf of the grantor. This includes receipts, invoices, and a log of the time spent managing their financial affairs.
- Accounting for Compensation
Every payment you make to yourself must be clearly documented. You should include:
- The date of payment
- The amount paid
- The reason for the payment (e.g., managing bank accounts, paying bills)
- Copies of supporting documents (receipts, invoices, etc.)
By keeping clear records, you can demonstrate that your compensation is reasonable and in line with the responsibilities of your role.
- Annual Reporting
In some cases, you may be required to provide an annual accounting to the grantor, their family members, or even the courts. This report should include all financial transactions made on behalf of the grantor, including any compensation you’ve paid to yourself.
Managing Conflicts of Interest
One of the key responsibilities of a Power of Attorney is to avoid conflicts of interest. Paying yourself for your services can sometimes be seen as a conflict, especially if the grantor’s family disagrees with the amount. To avoid potential issues, it’s important to follow these best practices:
- Ensure Fair Compensation: Always ensure that your compensation is reasonable and reflects the work you’ve done. If in doubt, consult a lawyer or accountant for guidance on fair rates.
- Consult with Family Members: Where possible, discuss your compensation with the grantor’s family to avoid misunderstandings or disputes later on.
- Obtain Legal Advice: If you’re unsure about any aspect of paying yourself as Power of Attorney, it’s a good idea to seek legal advice. This can help you navigate complex situations and ensure you’re acting within the law.
Also Read: - Invoke Power of Attorney in Ontario
Common Scenarios
Let’s look at a few common scenarios and how compensation would work:
- Scenario 1: The POA Document Specifies Compensation
John is named Power of Attorney for his aunt’s financial affairs. The POA document clearly states that John can pay himself $25 per hour for his services. He spends five hours managing her investments and bank accounts each month, so he pays himself $125. John keeps detailed records of the time spent and the tasks completed to justify this payment.
- Scenario 2: The POA Document is Silent on Compensation
Emily is acting as Power of Attorney for her father, but the POA document doesn’t mention compensation. Emily uses the Trustee Act formula to calculate her fees, which amount to 2.5% of the income and expenses she handles. Emily keeps careful records and reports her fees to her siblings each year to avoid any potential disputes.
Potential Legal Challenges
While the law allows for compensation, it’s not uncommon for disputes to arise over how much a Power of Attorney pays themselves. Family members or beneficiaries may argue that the fees are excessive or unfair. To avoid legal challenges:
- Stick to the Terms of the POA Document: If the document specifies a rate or fee, adhere to it strictly.
- Communicate Regularly: Keep the grantor’s family informed of your actions and the fees you’re charging.
- Prepare for Disputes: In the event of a dispute, be ready to provide detailed records and justify your compensation.
Practical Tips for Paying Yourself as Power of Attorney
- Stay Transparent: Keep all parties informed of your actions and compensation.
- Document Everything: Maintain a thorough paper trail of financial transactions and time spent.
- Consult a Professional: If you’re unsure, seek advice from a lawyer or financial advisor.
- Act in the Best Interest of the Grantor: Ensure that all your actions, including paying yourself, align with the grantor’s best interests.
Conclusion
Paying yourself as a Power of Attorney in Ontario is legally permitted, but it comes with responsibilities. Whether you’re following the instructions laid out in the POA document or relying on the Trustee Act, transparency and fairness are key. By keeping detailed records, communicating openly, and ensuring your fees are reasonable, you can avoid disputes and fulfill your role ethically.
Remember, your primary duty as Power of Attorney is to act in the best interest of the grantor. Keeping that principle at the forefront of your actions will ensure you manage this responsibility successfully.
