Can someone acting under a POA change a beneficiary designation?

I'd like to pick up on a comment left this week by a reader about Enduring Powers of Attorney. This is a topic that deserves a little bit more attention. I had said in a post that a person acting under an Enduring Power of Attorney cannot change a beneficiary designation made by the person he or she is looking after. I specifically mentioned that a POA cannot change the beneficiary of an RRSP or a life insurance policy. A reader made this comment below:

"The comment you made that a POA cannot change a beneficiary designations surprises me. I thought the idea of the POA (specifically the financial POA) was to make financial decisions for the incapacitated individual in a fiduciary manner? The beneficiary could have died or the principal could have a falling out with the beneficiary and the POA has no recourse? Also what if the principal did not complete a beneficiary designation. Can the POA designate one?"

You are correct that the POA is obligated to make financial decisions in a fiduciary manner on behalf of the donor who gave the POA the power in the first place. But there are limits.

A person acting under a POA is not allowed to re-write the donor's will. He is not allowed to change where the donor's money is going after the donor dies. Doing so is breaching the duty to follow the donor's instructions. If the POA changes the beneficiary of a life insurance policy or RRSP, then he is in fact changing where the money goes after the donor dies. The law is clear that testamentary wishes - that is, the decision about where a person wants their money to go after they die - is something unique to that person. It's a combination of knowledge, emotion, strategy, loyalties, experience and hopes that no POA could ever hope to understand or duplicate.

If the beneficiary named in an instrument dies, then the asset falls into the estate of the deceased. That is the nature of naming a beneficiary; if the testator had wanted to name an alternate beneficiary, he could have done so. The law will assume that the testator knew and wanted the funds to go into his estate if his beneficiary predeceased him.

If no beneficiary has been named on a policy or plan, the POA is not allowed to name one. The asset must fall into the estate when the donor passes away. The only tweak to that statement is that if the donor has already designated a beneficiary on an RRSP and it is being converted to a RRIF, the POA must name the same beneficiary and carry on with the previous designation.

In my experience, the banks usually catch the attempt at changing the beneficiary of a financial instrument like an RRSP or RRIF. At that point, the POA usually calls me in a snit asking why the bank is being so difficult. But in a situation like that, the bank is acting properly. Some of these changes do get through without being detected. Sometimes those end up in court as the person who would have received the RRSP, RRIF, or life insurance policy had the POA done his job properly sues the POA for the loss.

As for having a falling-out - if the donor has lost capacity to make financial decisions, then it is too late for him to make changes to his financial plans. It's that simple. The falling-out will just have to be tolerated. The phrasing of your question is interesting. You asked if the POA would "have any recourse". Why should he? It isn't his money. His job is to carry on the financial affairs of the donor in the best interests of the donor. The POA will have to accept that the plans that the donor made while capable were his real wishes and that is what the POA must carry out. 

To carry that question to its logical end, think about handling affairs for a person with severe dementia. As the person's memory diminishes and they no longer recognize family members, do you remove those family members from the donor's will? Do you assume the donor does not want to give funds to someone they don't even know anymore? Of course not; the job is to carry out what was in place when the donor was capable.

I am very glad that the reader, in his role as POA, is researching what to do and not to do, and is taking the role seriously. I can't tell you how many cases we lawyers see when people acting under a POA go too far and end up making a huge legal mess. Many of these are honest people, trying to do their best, but they just didn't ask before taking steps they shouldn't have taken. For this reason, every time we do Enduring Powers of Attorney for our clients, we give them a little tri-fold brochure that is full of "tips and traps" for POAs. We're hoping to keep the honest POAs out of trouble by giving them some important tips about what is expected of them.

As a final note, I suggest that if you have appointed someone to act under your Enduring Power of Attorney one day, give them a copy of my book called The Power of Attorney Answer Book, available by clicking here.