Competence
Competence is relevant to whether a person is capable of giving a power of attorney.
A person is competent to give a continuing power of attorney if he or she,
(a) knows what kind of property he or she has and its approximate value;
(b) is aware of obligations owed to his or her dependants;
(c) knows that the attorney will be able to do on the person’s behalf anything in respect of property that the person could do if capable, except make a will, subject to the conditions and restrictions set out in the power of attorney;
(d) knows that the attorney must account for his or her dealings with the person’s property;
(e) knows that he or she may, if capable, revoke the continuing power of attorney;
(f) appreciates that unless the attorney manages the property prudently its value may decline; and
(g) appreciates the possibility that the attorney could misuse the authority given to him or her.
Incapacity
Capacity to manage property and its converse incapacity are relevant to when many powers of attorney come into effect (“kick in”), as well as a number of other issues. Competence is really a more nuanced form of capacity.
A person is incapable of managing property if the person is not able to understand information that is relevant to making a decision in the management of his or her property, or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision.
Note that the tests for capacity and competence are different. On occasion, a person may be competent to grant a power of attorney yet incapable of managing their property.
Continuing powers of attorney
Only a power of attorney that is “continuing” may be exercised by the attorney if the grantor has lost capacity. Regular powers of attorney that are not “continuing” PoAs cannot be used if the grantor is incapable. Clearly, for most estate planning needs, where the concern is about the grantor losing capacity during their lifetime (through, for instance, dementia), useful powers of attorney must be continuing powers of attorney.
In order for a PoA to be a continuing PoA it must clearly state that it is a continuing PoA or otherwise clearly convey that the grantor intends it to be effective even if the grantor is incapable.