Powers of Attorney – New Law Has Taken Effect
When thinking about important estate-planning documents, most people think about a last will and testament, and rightly so. But while a will governs the distribution of assets after your death, what happens if you are incapacitated and need assistance during your lifetime?
A durable financial power of attorney allows someone else to make financial decisions for you if you are unable (or just need some help) to make them for yourself. The person making a power of attorney is called the “principal”; the person named to act is called the “agent.”
Powers of attorney are governed by state law. Pennsylvania’s power of attorney law was recently amended in significant ways by Act 95 of 2014. Act 95 was signed into law in 2014 and became fully effective on Jan. 1, 2015.
While the new law does not invalidate powers of attorney made earlier, any new documents should comply with the new requirements.
Among the new requirements are the following:
Powers of attorney signed after Jan. 1, 2015, must be signed by the principal in the presence of two witnesses and a notary public. Neither the witnesses nor the notary can be the agent named in the power of attorney.
While the requirement that powers of attorney must be signed is not new, the addition of witnesses and a notary is.
Notice to Principal
For at least 15 years, principals have been required to sign a notice on the front of a power of attorney that alerts them to certain elements of the power of attorney. The new notice adds the following:
Your agent must act in accordance with your reasonable expectations to the extent actually known by your agent and, otherwise, in your best interest, act in good faith and act only within the scope of authority granted by you in the power of attorney.
The law permits you, if you choose, to grant broad authority to an agent under the power of attorney, including the ability to give away all of your property while you are alive or to substantially change how your property is distributed at your death. Before signing this document, you should seek the advice of an attorney at law to make sure you understand it.
While it might be tempting to quickly read over and sign the standard notice, it is important to understand the effect of the power of attorney on both the principal and the agent.
Gifts and Estate-Planning Powers
Probably the most significant new feature in powers of attorney is the ability of the principal to grant specific powers to the agent to take actions that could affect the principal’s estate and financial planning.
These special powers are:
- Create, amend, revoke, or terminate an inter vivos (made during life) trust
- Make a limited or unlimited gift
- Create or change rights of survivorship
- Create or change a beneficiary designation
- Delegate authority granted under the power of attorney
- Waive the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan
- Exercise fiduciary powers that the principal has the authority to delegate
- Disclaim property, including a power of appointment
Your agent cannot take these actions unless specific permission is given. As with the notice, it is important that each option is discussed with your attorney. There is no “one size fits all” or standard set of instructions: Everyone’s situation will be different.
For instance, the ability to make gifts might be helpful to someone thinking about medical assistance planning; on the other hand, some people are unwilling to give up that level of authority.
Acknowledgment of Agent
Agents named under a power of attorney have been required to sign an acknowledgment for many years. The agent acknowledgement must be signed by the agent before the agent can take actions under the power of attorney.
Act 95 revised the agent acknowledgement to add language specifically setting forth certain duties owed to the principal:
I shall act in accordance with the principal’s reasonable expectations to the extent actually known by me and, otherwise, in the principal’s best interest, act in good faith, and act only within the scope of authority granted to me by the principal in the power of attorney.
Principals also have the option to require additional duties of their agents, such as keeping a record of all receipts, disbursements, and transactions made on behalf of the principal.
Liabilities of Third Parties
A power of attorney is only useful if a third party, such as a bank, is willing to accept it. Act 95 adds certain protections for those third parties that will make it more likely that they will accept the power of attorney and allow the agent to use it.
With the passage of Act 95, powers of attorney have become more complex. With the options available to the principal, it is important that an attorney be consulted so that your power of attorney best reflects your wishes.