Changes to the Power of Attorney Law Set to Take Effect January 1, 2015
By Alissa B. Gorman
Major changes to Pennsylvania’s financial power of attorney law are set to take effect on January 1, 2015. Act 95 was signed into law on July 2, 2014, with some minor provisions taking immediate effect. However, major provisions of the law requiring significant modifications to the document are effective beginning on January 1, 2015.
A power of attorney is a document in which the principal, or person making the power of attorney, appoints an agent to act on his or her behalf for financial matters, medical decisions, or both. A general durable power of attorney is the most common type of power of attorney, as it encompasses both medical and financial decision-making powers in one document. The principal gives the agent broad authority to act on his or her behalf, and typically includes the power to access bank accounts, investment accounts, make gifts of the principal’s money, and change beneficiary designations on retirement plans, just to name a few.
A power of attorney is an extremely powerful document in an estate plan, as the principal authorizes someone else to carry out his or her estate plan, even after the principal is incapacitated and can no longer makes decisions for him or herself. While a power of attorney provides a great service to the majority of principals, bestowing someone with such powers can, at times, lead to an abuse of the powers, especially as the principal ages and is no longer able to manage his or her finances. Therefore, the new power of attorney law aims to give principals greater control in what powers are included in the document, and what duties are requires of the agent.
All of the provisions contained in the new law are too numerous to mention. The most significant changes include 1) the principal’s ability to grant an agent certain “hot” powers, which powers must be explicitly stated in the document, 2) the liability of third parties when relying on the power of attorney, 3) the responsibilities and duties of the agent, and 4) the signing requirements for the document. Beginning on January 1, 2015, a principal may not rely on general global language granting to the agent all powers under the law, but must list certain powers in the document, or they are waived. The principal must now explicitly grant the agent the power to 1) make gifts of the principal’s assets, which may be limited (an agent may only gift up to a certain amount each year) or unlimited (an agent may gift any amount),
2) create or modify a trust,
3) create or change a beneficiary designation on a retirement plan or other asset,
4) waive the principal’s right to be a beneficiary of a joint and survivor annuity,
5) disclaim any interest in property or power of appointment,
6) delegate powers under the power of attorney,
7) change or create rights of survivorship, and
8) exercise fiduciary powers of the principal.
The new power of attorney law also clarifies the liability of a third-party when replying on a facially valid power of attorney, In a response to Vine v. Commonwealth Employees’ Retirement Board, 9 A.3d 1150 (Pa. 2010), banks and other institutions may accept a properly executed power of attorney, so long as the bank or institutional employee has no actual knowledge that the power of attorney is not valid. Third-parties may also request more information to determine the validity of the document, and may also request an expert opinion as to whether the presented power of attorney is valid.
The notice to the principal, which serves as a warning to the principal that he is giving his agent broad authority to act on his behalf, and the acknowledgment of the agent, which is signed by the agent to confirm acceptance of agent, will both be modified to include certain nonwaivable duties of the agent. Beginning on January 1, the agent must 1) use the powers “in accordance with the principal’s reasonable expectations,” if actually known by the agent, 2) act in good faith, and 3) act within the scope of authority provided in the document. Waiveable duties of the agent, which may be modified in the document, include, but are not limited to, a duty of loyalty to the principal, keeping the agent’s assets separate from those of the principal, keep a record of all receipts, disbursements, and transactions made on behalf of the principal, preserving the principal’s estate plan, to the extent it is in the best interests of the principal.
The signing requirement of a power of attorney will also change. A principal must sign the power of attorney in front of two adult witnesses and a notary. An agent may not serve as a notary or a witness, and the notary may not be a witness. Powers of attorney signed before January 1, 2015 remain effective as long as they were validly executed in compliance with then-existing law. However, it is highly recommended that you review your power of attorney to identify which powers are granted in your document, and to determine whether you would like to waive some of the requirements of the agent under the current law. The entire estate plan (including Will, Power of Attorney, and Advance Medical Directive) should be reviewed on an annual basis to be sure that it meets your current needs, and should be modified upon a major life change or major change in the laws.