Electronic copy available at: http://ssrn.com/abstract=1396502. Texas Tech University School of Law. Texas Tech School of Law Legal Studies Research Paper ...
Texas Tech University School of Law Texas Tech School of Law Legal Studies Research Paper No. 2009-03
THE UNIFORM POWER OF ATTORNEY ACT: NEW SOLUTIONS TO OLD PROBLEMS Gerry W. Beyer, Governor Preston E. Smith Regents Professor of Law
Electronic copy available at: http://ssrn.com/abstract=1396502
studies
estate planning April 2009
The Uniform Power of Attorney Act: New solutions to old problems By Gerry W. Beyer*
A durable power of attorney can fail for any number of reasons. This Study examines some of the provisions in the 2006 Uniform Power of Attorney Act and how they attempt to meet some of the challenges that durable powers face, with a focus on: n formalities in drafting n standards of conduct for an agent
Uniform Durable Power of Attorney Act, the 1988 Uniform Statutory Form Power of Attorney Act, and, most recently, the 2006 Uniform Power of Attorney Act (UPOAA). Although only two states, Idaho and New Mexico, have adopted the UPOAA, it already has been introduced in the legislatures of at least three other states (Indiana, Maryland and Virginia) this year. It is anticipated that enactment of the UPOAA or “cherry-picking” of certain of its provisions will grow rapidly in
®
Your clients are statistically more likely to become disabled in the next year than to die if they are now under age 60.1 Thus, it is extremely important to plan for the possibility of their disability and to make arrangements for the management of their property2 during times when they may lack the ability to make those decisions for themselves. Delegating management powers in a general power of attorney is not usually a viable option. Under traditional agency law, an agent’s authority terminated when the principal became incompetent, on the theory that the principal would no longer be able to monitor the agent’s conduct. This rule prevented powers of attorney from being used as a disability planning technique. In 1954 Virginia become the first state to authorize by statute a durable power of attorney, which provided that the agent’s authority to act continues even after the principal becomes incompetent. All states now sanction durable powers of attorney. To address concerns with durable powers that have arisen over the years, the National Conference of Commissioners on Uniform State Laws has approved a progression of recommended statutes, including the 1979
n an agent’s powers and authority n overcoming the dishonoring of the document
Estate Planning Studies and Briefs® is published by trust departments around the country and distributed free of charge to estate planning professionals. For details, contact The Merrill Anderson Company,
www.merrillanderson.com.
Electronic copy available at: http://ssrn.com/abstract=1396502
Agent’s acceptance
the near future. 3 CREATION FORMALITIES Statutory form
Although its use is not required, UPOAA §301 contains a concise statutory form, which the principal, in most cases, will elect to use. The form is more extensive than the forms currently in use in many states. The form begins with instructions on how a power of attorney operates. The form then continues in “fill-in-the-blank” fashion, providing the principal with spaces to indicate his or her desires. But unlike some state forms, the UPOAA form’s list of powers to be granted must be initialed (either each one individually or next to one that states “all preceding subjects”), rather than presumptively granting all powers with only those powers that the principal strikes out as not being granted. The form also supplies a list of powers, generally relating to gifts and other estate planning matters, that the principal must specifically grant if he or she wishes the agent to have those powers. The form includes spaces for two alternatives as well as for the principal to indicate special instructions. For example, the principal may not want certain specific items of property (e.g., heirlooms or the family farm) to be gifted or sold because those items are to pass upon death under the principal’s will. The principal may use this form to nominate a guardian or conservator of his or her estate, should the need later arise. It is significant that the form does not include a provision for the principal to exclude individuals from being appointed as guardian or conservator. This is considered a major shortcoming of the UPOAA—it may be more important to a principal to keep the “evil” child from being appointed as a guardian than it is to specify exactly which of the “good” children has priority. See UPOAA §108(a). The form concludes with an information section for the agent. This material, for example, explains: the agent’s duties; how to sign as an agent in a representative capacity; the time at which the agent’s authority terminates; and the liability of the agent. At the bottom of the form is a warning that the agent should seek legal advice if the agent is unclear about the document or the agent’s duties. © 2009 M.A. Co. All rights reserved.
Under UPOAA §113, an agent demonstrates acceptance of his or her appointment by “exercising authority or performing duties as an agent or by any other assertion or conduct indicating acceptance.” PRESUMPTION OF DURABILITY
In a significant change from prior Uniform statutes and the laws of virtually all states, a power of attorney is now presumed to be durable, unless it contains express language negating the durability feature. UPOAA §104. As explained in the Comment, this change is “based on the assumption that most principals prefer durability as a hedge against the need for guardianship.” SPRINGING POWERS OF ATTORNEY
UPOAA §109 provides that, unless otherwise stated, a power of attorney is effective immediately. This assumption has two ramifications, one good, one bad. The good: The principal does not need to be concerned with how his or her disability is going to be determined because disability is not a condition for the agent to have authority to act. The bad: The agent may immediately manage the principal’s property, which may provide an open avenue for improper conduct, both innocent and intentional. Of course, if the principal fears that an agent will act improperly now, the principal should anticipate that the principal would act improperly later and select a more trustworthy agent. Fear is, however, not the reason most principals like springing powers. Instead, as the Comment states, the reason is “most likely to maintain privacy in the hope that they will never need a surrogate decision maker.” The principal may expressly make the agent’s power begin on a specified date or depend on occurrence of a stated contingency, such as the principal’s incapacity. UPOAA §109(a). If the principal elects to make the agent’s powers springing, the principal may designate a specific person to make the determination of incapacity. However, if no one is named, the determination may be made by a doctor or licensed psychologist, who determines that the principal’s ability to handle financial matters is impaired. In addition, a lawyer, judge or appropriate government official
2 Electronic copy available at: http://ssrn.com/abstract=1396502
may trigger the agent’s powers by determining that the principal is missing, detained or unable to return to the United States. UPOAA §109(c). UPOAA §109(d) states that a person whom the principal authorizes to make the determination of whether the principal is incapacitated may act as his or her “personal representative” for purposes of the Health Insurance Portability and Accountability Act so that the agent may obtain the principal’s medical records and talk with his or her doctors. This innovative provision allows the person charged with the responsibility of determining whether the springing event has occurred to obtain information that may be significant to concluding that the principal actually is incapacitated.
grants them to the agent; and (2) they are not prohibited by another agreement or instrument to which the authority or property is subject— • to create, amend, revoke or terminate an inter vivos trust; • to make a gift; • to create or change rights of survivorship; • to create or change a beneficiary designation; • to delegate the agent’s authority to another person; • to waive the principal’s right to be a beneficiary of a joint and survivor annuity; • to exercise fiduciary powers that the principal has authority to delegate; or • to disclaim property, including a power of appointment. Even if the principal is granted express authority to take these acts, an agent who is not the principal’s spouse, descendant or ancestor may not exercise the power to “create in the agent, or in an individual to whom the agent owes a legal obligation of support, an interest in the principal’s property, whether by gift, right of survivorship, beneficiary designation, disclaimer, or otherwise.” However, the power of attorney may specially override this prohibition. UPOAA §201(b). An example from the Comment is instructive: “[A] non-relative agent with gift making authority could not make a gift to the agent or a dependant of the agent without the principal’s express authority in the power of attorney. In contrast, a spouse-agent with express gift-making authority could implement the principal’s expectation that annual family gifts be continued without additional authority in the power of attorney.”
MARITAL PROBLEMS BETWEEN AGENT AND PRINCIPAL
If the agent and principal are married, a significant number of states provide that the agent’s power terminates upon divorce. Of course, it is unlikely that the principal would want the agent to have authority, even before a divorce is final, if the parties are in the process of a divorce action. In a significant enhancement of prior law, UPOAA §110(b)(3) provides that the agent’s authority not only automatically terminates upon divorce, but also terminates upon the commencement of proceedings for legal separation, marital dissolution or annulment, unless the principal provided otherwise in the power of attorney.4 AGENT’S POWERS Default powers
Special rules for gifts
The UPOAA contains an extremely comprehensive list of powers that the principal is presumed to have granted to the agent; that is, they are automatically incorporated by reference into the form power of attorney. UPOAA §§204-217.5 This allows the power- of-attorney form to be relatively concise, and yet provides the agent with authority to take virtually all actions that the principal could take.
Even if a principal has granted the agent the power to make gifts, that authority is limited unless the principal specifically trumps the restrictions provided in UPOAA §217. The amount of the gift is limited to the federal gift tax annual exclusion amount (or twice that amount if the principal’s spouse consents to a split gift). The agent may not make a gift unless the agent determines that the gift is either: (1) consistent with the principal’s objectives, which the agent actually knows; or (2) is consistent with the principal’s best interest after
Powers that must be expressly granted
Under UPOAA §201, the agent will have the following powers only if: (1) the principal expressly 3
agent exercises the power in good faith and without actual knowledge of the principal’s death.
considering factors such as the value and nature of the principal’s property; the principal’s foreseeable obligations and need for maintenance; minimization of income and transfer taxes; eligibility for governmental assistance (e.g., Medicaid); and the principal’s history of making gifts.
AUTHORITY OF MULTIPLE AGENTS
Generally, a principal should not name coagents (as contrasted with successor agents) because of the difficulty of gaining acceptance of the power if only one of the agents is present. In addition, if the principal designates an even number of coagents, it raises the possibility of a deadlock that would require court involvement. In recognition of these problems, UPOAA §111 provides that each coagent may exercise his or her authority independently. If the principal prefers, he or she may expressly provide that consent of all or a majority of the coagents is required. Nonetheless, prudent practice is to have only one agent serving at a time because, as stated in the Comment, naming coagents “significantly increases the risk that inconsistent actions will be taken with the principal’s property” or “that coagents will use the power of attorney to vie for control of the principal and the principal’s property.” Typically, an agent will not be responsible for a breach of fiduciary duty committed by another agent unless the agent participated in or concealed the breach. UPOAA §111(c). Thus, coagents do not have a duty to monitor each other’s conduct. However, if the agent has actual knowledge of a breach or imminent breach of fiduciary duty by a coagent, the agent must notify the principal, and if the principal is already incapacitated, take whatever action is reasonably appropriate to safeguard the best interests of the principal. If the agent does not take these actions, the agent will be liable for any reasonably foreseeable damages that could have been avoided if the agent had taken the appropriate steps. UPOAA §111(d).
Ramifications of guardian appointment
A conflict may arise if a court appoints a guardian of the estate or conservator for a principal who has a valid power of attorney, if that court-appointed person is not the agent. Unlike prior Uniform Acts and the laws of many states, the agent’s authority is presumed to continue and to trump that of the guardian unless the agent’s authority is limited, suspended or terminated by a court. UPOAA §108(b). This approach is more likely to be in accord with the principal’s intent, considering that the principal handpicked the agent but may not have had any input regarding the person appointed as the guardian. In most cases, a client should name the same persons as the agent and successor agents as the client nominates as the client’s guardian and successor guardians. This permits seamless management of property because if, for some reason, the court needs to appoint a guardian, the court already knows the person whom the client wishes to serve as his or her guardian. In addition, as the Comment explains, this technique will discourage “guardianship petitions filed for the sole purpose of thwarting the agent’s authority to gain control over a vulnerable principal.” For example, the principal may have appointed Child A as her agent, and Child A has been doing an excellent job managing the parent’s property and spending his or her money in ways that provide her with a high level of care. Child B, on the other hand, is upset at the “waste” and wants Child A to stop spending the anticipated inheritance. If Child B files for guardianship, Child A has priority, unless Child B can prove to the court that there is good cause not to appoint Child A.
STANDARD OF CONDUCT Nonwaivable duties
The agent is bound by the duties stated in UPOAA §114(a), regardless of the terms of the power of attorney or the principal’s intent. These nonwaivable fiduciary duties include acting: (1) in accordance with the principal’s reasonable expectations to the extent that they actually are known to the agent and,
After-death exercise of powers
Usually, an agent’s authority, even under a durable power of attorney, ends at the moment that the principal dies. However, UPOAA §110(d) provides that the agent’s power continues as long as the 4
if not, in accordance with the principal’s best interest; (2) in good faith; and (3) within the scope of authority granted in the power of attorney.
… are family members who have inherent conflicts of interest with the principal arising from joint property ownership or inheritance expectations.”
Waivable duties
Exculpatory clauses
UPOAA §114(b) encompasses an extensive list of the duties to which an agent is normally bound. These duties include: (1) acting loyally for the principal’s benefit; (2) avoiding conflicts of interest; (3) acting with ordinary care, competence and diligence; (4) keeping records and receipts; (5) cooperating with the principal’s health care agent; and (6) preserving the principal’s estate plan if doing so is in the principal’s best interest. Unlike the §114(a) duties, the principal may authorize otherwise and permit, for example, acts of self-dealing and conflicts of interest. The principal may lower the agent’s standard of care under UPOAA §114. A principal may wish to do so when appointing a family member or friend who may lack the skills of a professional property manager. The principal, however, may not lower the standard “too far”; that is, regardless of the exculpatory language the principal uses, the agent will remain liable for acts taken dishonestly, with an improper motive, or with reckless indifference to the purposes of the power of attorney or the principal’s best interest. If the principal selects an agent because he or she has, or represents himself or herself as having, special skills or expertise, the agent will be bound by those skills or representations, unless the power of attorney provides otherwise. UPOAA §114(e).
The principal may exonerate the agent for breaches of most duties. However, the principal may not relieve the agent of liability for a breach committed dishonestly, with an improper motive, or with reckless indifference to the purposes of the power of attorney or the principal’s best interest. In addition, an exculpatory clause included because of an abuse of a confidential or fiduciary relationship with the principal is unenforceable. UPOAA §115. Exculpatory clauses should not be routinely inserted into powers of attorney. However, as the Comment indicates, “if the principal is concerned that contentious family members will attack the agent’s conduct in order to gain control of the principal’s assets, an exoneration provision may deter such action or minimize the likelihood of success on the merits.” COMPENSATION OF AGENT
Unless the principal expressly provides otherwise, the agent is entitled to reasonable compensation, as well as reimbursement of expenses that the agent reasonably incurred on the principal’s behalf. UPOAA §112. Although family members who serve as agents often are willing to serve at no charge, the Comment points out that “payment of compensation to the agent may be advantageous to the principal in circumstances where the principal needs to spend down income or resources to meet qualifications for public benefits.”
Loyalty duties
At common law a fiduciary, such as an agent, could not benefit from serving in the fiduciary role, even if those benefits did not cause a detriment to the principal. This rule is reversed in UPOAA §114(d), which states that an agent who acts in the best interest of the principal “is not liable solely because the agent also benefits from the act or has an individual or conflicting interest in relation to the property or affairs of the principal.” The Comment elaborates that “[t]he public policy which favors best interest over sole interest as the benchmark for agent loyalty comports with the practical reality that most agents
REVIEW OF AGENT’S CONDUCT
UPOAA §116(a) provides a laundry list of individuals who have standing to petition the appropriate court to construe a power of attorney and to review the agent’s conduct. The individuals granted this authority include: the principal; the agent; the principal’s guardian or conservator; the principal’s agent under a medical power or attorney or advance directive; the principal’s close relatives (spouse, par5
ent, descendant, and presumptive heirs); a person named as an at-death beneficiary in a contract, trust or similar nonprobate asset; a governmental agency with authority to protect the principal’s welfare; the principal’s caregiver; a person asked to accept the power of attorney; and anyone who can demonstrate sufficient interest in the principal’s welfare. If the principal is competent, the court must dismiss a petition filed by one of these individuals upon the principal’s motion. UPOAA §116(b). If the agent is in breach, the agent is liable to the principal (or the principal’s successors in interest). This liability is to: (1) restore the value of principal’s property to what it would have been but for the breach; and (2) reimburse for attorney’s fees and costs paid on the agent’s behalf. UPOAA §117. Note that these remedies are not exclusive, so if the forum state provides for additional remedies, those remedies also would be available. UPOAA §123.
whether to: (1) accept the agent’s power or (2) request (a) the agent’s certification (made under penalty of perjury) of any factual matter concerning the principal, the agent or the power of attorney;6 (b) an English translation of the power if it is not written in English; and/or (c) a lawyer’s opinion as to any matter of law concerning the power as long as the request includes the reason for the request in writing or another record. If the agent makes a request under the second option, the person must accept the agent’s authority no later than five business days after receiving the certification, translation or opinion of counsel. Note that the person may not require that the principal use an additional or different form. UPOAA §120(a). If the person nonetheless refuses to accept the agent’s authority, the court may order the person to accept the agent’s authority. In addition, the person is liable for reasonable attorney’s fees and the costs that the agent incurs in any action or proceeding taken to confirm the validity of the power or to force the person to accept it. UPOAA §120(c). UPOAA §120(b) enumerates a variety of situations in which the agent’s authority does not need to be accepted. For example, a third party does not need to follow the agent’s directions if: the transaction would be inconsistent with federal law; the person knows that the agent’s authority already has been terminated; the person has a good faith belief that the power is invalid or that the agent lacks the authority to act, even if the agent supplied a certification, translation or opinion of counsel; or the person has made, or knows that someone else has made, a report to the appropriate state agency alleging in good faith that the principal may be subject to physical or financial abuse, neglect, exploitation or abandonment by the agent or a person acting for or with the agent.
DISHONOR OF POWER OF ATTORNEY
Perhaps the most significant practical problem with a power of attorney is that the agent cannot force a third party to accept the agent’s authority. Some institutions have a reputation of making it difficult for an agent by flatly refusing to honor a power of attorney, regardless of how favorably drafted, in order to protect persons who rely on the agent’s authority. The UPOAA takes several steps in its attempt to solve this problem. First, UPOAA §119 grants protection to parties who rely in good faith on an acknowledged power of attorney as long as they are without actual knowledge that the power has been revoked, has been terminated, is invalid, or that the agent is exceeding the authority granted by the principal or is exercising agent’s powers improperly. Second, UPOAA §120 imposes liability on a person who refuses to accept the agent’s authority under certain circumstances. This section has two alternatives from which the enacting state may select. The only difference is that “Alternative A” requires the acknowledged power of attorney to be in the statutory form, while “Alternative B” applies to any power of attorney that is acknowledged properly. Here is a summary of how this “forced acceptance” provision operates. The person has seven business days to decide
PORTABILITY
According to census reports, about one in six Americans moves each year, and the average American moves almost a dozen times in his or her lifetime. Accordingly, the drafters of the UPOAA believed that it was important to make durable powers of attorney as portable as possible. UPOAA §106 states that a power of attorney executed in another jurisdiction is valid in the forum state, provided the principal’s execution of that power complied with: (1) the 6
law of the jurisdiction that the principal indicated in the power by means of either a choice of law provision or by mere reference to a particular jurisdiction; or (2) if the principal did not state a jurisdiction, the law of the jurisdiction in which the principal executed the power. UPOAA §107, which provides that the meaning and effect of the power also is governed by this other jurisdiction. As the Comment explains, “the principal’s intended grant of authority will be neither enlarged nor narrowed by virtue of the agent using the power in a different jurisdiction.”7
decisions. Resignation. If the principal still is capable, the agent merely needs to give notice to the principal in order to resign. However, if the principal is incapacitated, the agent must notify any guardian or conservator, as well as a coagent or successor agent. If none of these persons are available, the agent must give notice to the principal’s caregiver, a person with sufficient interest in the principal’s welfare, or a governmental agency with the authority to protect the principal’s welfare. UPOAA §118.
OTHER NOTEWORTHY PROVISIONS
GENERAL ADVICE
Agent no longer called “attorney-in-fact.” Nonlawyers are often confused by the term “attorney-in-fact” and do not realize that the term refers to an agent, not a lawyer. To reduce this confusion, the UPOAA no longer uses the term. UPOAA §102(1). Principal’s lack of management power called “incapacity.” In recognition that individuals who are disabled often possess the ability to manage their property and business affairs, the UPOAA refers to a principal in need of property management assistance as lacking capacity rather than being disabled. UPOAA §102(5). No liability to estate beneficiaries for lost gifts. Many actions of an agent may have an impact on the disposition of the principal’s property upon his or her death. For example, assume that the principal’s will leaves: a house to Child A; $50,000 to Child B; and the remainder to Child C. Child C is also the pay-on-death beneficiary on the principal’s bank account. The decisions that the principal makes regarding where to obtain funds to pay expenses— such as mortgaging the house, selling estate property or making withdrawals from the bank account—will have an impact on the amounts that each of the children will receive upon the principal’s death. Unless waived, UPOAA §114(a)(6) requires that the agent attempt to preserve the principal’s estate plan to the extent actually known by the agent. UPOAA §114(c) provides the agent with protection from liability to the beneficiaries of the principal’s estate, as long as the agent acts in good faith. It is significant that the agent does not appear to have the authority to contact the principal’s attorney and demand to see a copy of the principal’s will and other estate planning documents so that the agent could make more informed
Selection of agent
Obviously, the agent must be someone in whom the principal has utmost confidence. There are, however, other considerations. Before naming the agent, the principal should make certain that the agent is willing to devote the time and energy necessary to perform the agent’s duties. The agent and principal should talk seriously about the principal’s financial situation and how the principal wants his or her property handled in the event of incapacity. Not only should the agent be willing to serve, but the agent also should be in relatively close physical proximity to the principal and the property—it is difficult to live in New York and serve as an agent for someone in Alaska. Designation of principal
The designation of the principal in the power of attorney should match how the principal is designated on other documents relating to property, such as deeds, certificates of title, and accounts. For example, in real estate transactions, a title examiner prefers an exact match of grantee and grantor designations and may be reluctant to insure if the grantee is “Peggy Smith” and the grantor is “Margaret Smith Jones.” CONCLUSION
The UPOAA does an admirable job of modernizing power of attorney law to reflect legislative trends and collective best practices. The enhancements should facilitate the acceptance of durable powers and make it more difficult for devious individuals to abuse the 7
powers. The Act, however, is not the “end all” of power of attorney practice, and thus the practitioner must be vigilant to ascertain the principal’s desires, consider the applicable law and facts, and then customize the power to meet the client’s needs. *Gerry Beyer is Governor Preston E. Smith Regents Professor of Law, Texas Tech University School of Law, Lubbock, Texas. Prof. Beyer holds a J.D. summa cum laude from Ohio State University and LL.M. and J.S.D. degrees from the University of Illinois. Previously, Prof. Beyer taught at St. Mary’s University School of Law and has served as a visiting professor at several other law schools, including Boston College, La Trobe University (Melbourne, Australia), Southern Methodist University, the University of New Mexico and Santa Clara University. He is a frequent contributor to both scholarly and practice-oriented publications and has authored and coauthored numerous books and articles in the estate planning field. Prof. Beyer is also a frequent speaker at continuing legal education programs and is an Academic Fellow of the American College of Trust and Estate Counsel. FOOTNOTES 1. Pamela Yip, Accident or Illness Could Take a Greater Financial Toll on Your Family Than Your Death, HOUSTON CHRON., June 3, 1996, at 1B (reproducing chart supplied by Society of Actuaries). 2. It is of equal, if not greater, importance to have advance directives (living will, medical power of attorney) in place
so that someone can make health care decisions during periods of incapacity. 3. A comprehensive discussion of all provisions of the UPOAA is beyond the scope of this Study. For detailed critiques, two articles prepared by the Act’s Reporter, Professor Linda S. Whitton of the Valparaiso University School of Law, are recommended highly: Navigating the Uniform Power of Attorney Act, 3 NAELA J. 1 (2007) and Durable Powers as an Alternative to Guardianship: Lessons We Have Learned, 37 STETSON L. REV. 7 (2007). 4. A principal might want the agent’s power to continue even after the divorce petition has been filed because of a “catastrophic illness and the need for public benefits.” Comment to UPOAA §110. 5. The categories of powers incorporated by reference include those relating to: real property; tangible personal property; stocks and bonds; commodities and options; banks and other financial institutions; operation of an entity or business; insurance and annuities; estates, trusts and other beneficial interests; claims and litigation; personal and family maintenance; benefits from governmental programs or civil or military service; retirement plans; taxes; and gifts. 6. A form for this certification is provided in UPOAA §302. 7. For additional information on inter-jurisdictional issues, see Linda S. Whitton, Crossing State Lines with Durable Powers, PROB. & PROP., Sept./Oct. 2003, at 28. See also UPOAA §201(f), which provides that the agent’s authority is exercisable over property “whether or not the property is located in this state and whether or not the authority is exercised or the power of attorney is executed in this state.”
