I’m hoping someone can give me advice about my mother’s accounts. She is 87, has dementia and lives in a care facility. I hold her power of attorney and am named as executor. She currently has about $250,000 in bank accounts and GICs. Should a small portion be gifted to each child now as a “gift”? If so, would that gift be taxable and is there a safe amount to give?
—Chris
Gifting of assets and power of attorney
First, I’m sorry to hear about your mother. Dementia creates difficult care and financial decisions, and it’s understandable you want to plan for the future.
When you act under a power of attorney, you are legally responsible for making decisions for the person who granted you that authority. A power of attorney typically permits handling routine and significant financial tasks on the principal’s behalf, such as banking, managing investments, and buying or selling property.
That authority carries a fiduciary duty: you must act in your mother’s best interests. A power of attorney does not give you the right to rewrite her will or change beneficiary designations. It does not automatically permit dividing her estate among beneficiaries before her death unless the documents or local law explicitly allow that and it is clearly in her best interests.
In practical terms, managing her finances under a power of attorney means preserving her assets to pay for care and living expenses and following any directions she left in legal documents. Making gifts to yourself or your siblings solely to accelerate inheritance would generally fall outside the proper use of POA authority.
What is an executor in Canada?
An executor is the person named in a will to administer the deceased’s estate and distribute assets according to the will. The power of attorney governs decisions while the person is alive and stops at death. After death, the will — and the executor named in it — take responsibility for settling the estate, though some functions may require probate.
Even if your mother’s will directs equal distribution among her children, you do not act as executor until she passes away. Until then your role is to manage her finances for her benefit, not to begin estate distribution.
The risks of gifting a living parent’s assets
People sometimes divide a parent’s estate prematurely, but doing so carries risks. The primary concern is breaching your fiduciary duty as attorney. Improper gifting can make you personally liable for mismanaging her finances.
Gifting significant amounts could also leave your mother without sufficient funds to cover current and future care costs. Long-term care, unforeseen medical needs, and residential care fees can deplete savings faster than expected.
The possible benefits of early gifting are limited: recipients may receive inheritance sooner, and in some provinces small estate-planning savings may occur around probate or estate administration fees. However, those benefits rarely outweigh the potential legal and ethical consequences, particularly if the estate is not large.
Gifts and taxes in Canada
In Canada, gifts themselves are generally not taxable to the recipient. However, there can be tax consequences when assets are sold or withdrawn to make a gift. For example, withdrawals from registered plans or income generated by certain accounts can trigger income tax for the account holder. Selling non-registered investments or transferring real property may also create capital gains tax events.
Some estate-planning strategies — such as certain types of inter vivos trusts often referred to in planning contexts — can affect probate exposure. These strategies have specific rules and must align with the will’s terms about how assets should be distributed at death. They typically require legal and tax advice and can involve set-up and ongoing costs; they are commonly only advantageous for larger estates or in jurisdictions with high probate fees.
So, while you could physically transfer money now to family members, doing so without clear legal authority and without being certain it is in your mother’s best interest would likely be improper. It may not always lead to immediate legal consequences, but it can expose you to challenges from other family members or from oversight authorities if concerns are raised.
Choosing someone for power of attorney
Seniors should appoint someone they trust implicitly to act as their attorney or executor, because these roles require a high degree of integrity and judgment. Children who accept the role of attorney should be careful to honor the duties of that role and avoid treating it as an advance distribution of the estate.
Both the person granting authority and the person accepting it should seek legal advice so they understand how the documents work, what powers are granted, and what obligations the attorney will owe. Professional guidance can help avoid mistakes that could harm the principal or create personal liability.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell financial products.
Read more on power of attorney:
- Estate planning changes in Ontario
- Investing as power of attorney
- Can a power of attorney claim a fee?