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In Canada it’s very straightforward as to how you can establish the authorities over your banking and assets: a Power of Attorney (POA) or joint accounts. Yes, you still need a clear last will and testament that defines your wishes after you pass but prior to that, choosing a trustworthy representative for your financial wishes while you live is essential.

POA has more options for rules

A POA can do anything with your property or assets, but you can limit their authority, and that’s a good thing. The other good thing is you can still act on your own accord even with a POA in place.

A POA can be general, while you have your mental faculties, or continuing/enduring, in the event you lose your mental faculties. Your POA cannot make a will for you (or change your existing one), add or change a new POA, or amend a beneficiary on a life-insurance plan. And if medical challenges are on the horizon, you’ll need to establish a health directive, which is a different form of a POA.

Joint accounts are effectively joint ownership and give the other party the freedom to do anything they want with the funds in the specific account they are joint on, without limitations. They’re commonly used by spouses, and sometimes with adult children or caregivers. Obviously, there are greater risks with joint accounts, but you can manage some of the risk by setting up a dual-consent requirement for every transaction (or a threshold value; say anything over $500). That means that both account owners need to agree to the transaction.

What makes a good POA relationship

Trust. You should ask someone you trust, and in my opinion, a person who has a history of solid financial and personal judgment. It can be your spouse, a friend, a family member or anyone who’s a willing participant. Your POA might ask for payment and you’ll want to be clear about any compensation system that you set up.

Clarity. Being too specific or vague is bad news. If workable guardrails are not established, you risk the POA being unable to perform their tasks effectively. Be clear. Keep your POA up to date by reviewing it at your annual and mid-year financial check-ins. And, do not have a cast of characters all acting as your collective POAs — sage advice that my money mentor gave to me years ago.

Understand your banks’ role in the POA relationship. A POA can conduct your day-to-day banking, with your permission. Most financial institutions have strict policies and paperwork that must be followed for POAs. Know how your bank treats a POA, what their checks and balances are to prevent fraud, how often they will communicate with you and so on. Leave no room for surprises.

What makes a good joint-account relationship

Trust. Similar to the POA, you need to trust this person implicitly. Should a relationship break down, you risk the account being emptied, and it’s effectively legal to do so. You can contest it in court, but that’s an expensive avenue and can take a lot of time to resolve.

Good financial habits of both joint-account holders. Should the joint party get themselves into a financial pickle — too much debt leading to orderly debt repayment or bankruptcy — your account can be accessed by creditors. Also, if they simply spend too much money, your funds might be used to pay off high credit-card balances and such. Before you join accounts with anyone, even your spouse, assess both of your habits, deal with the bad ones and set clear boundaries.

Understand what happens to the account when you die. Your financial institution will be able to provide an overview of what happens to your joint accounts when you die. Get those details! If you’re not happy with the process, find another bank or consider a POA instead.

POA can be tweaked by you alone

A POA relationship can be changed. You can replace the person, update the limitations of the agreement, add another POA to increase accountability, convert the POA into an enduring POA and more. The bottom line is that it is a flexible tool to meet your changing needs, as compared to a joint banking arrangement where it would take a willingness from both parties to change the ownership on the accounts.

In all cases, I cannot stress enough how important it is to have a quality conversation with your lawyer about whether a POA or joint banking is better for you. You will also want them to weigh in on what happens when you pass away; taxes, probate, and more. Though joint banking is very convenient to set up, it has more risks than a clearly crafted POA arrangement.