Pennsylvania has adopted the most sweeping changes to its power of attorney statute since 1999. The new law, signed into law in July, made some changes that took effect immediately and others that will take effect January 1, 2015.
Changes effective now
For years, Pennsylvania law has encouraged the use and acceptance of powers of attorney. It does so by requiring any person who “is given instructions by an agent in accordance with the terms of a power of attorney” to follow those instructions or be subject to “civil liability for any damages resulting from noncompliance.” On the other hand, the law provides immunity to any person who acts in good faith reliance on such instructions.
Those concepts still apply, but the new law expands on each of them greatly and prescribes procedures that can be followed to verify the validity of a power of attorney. For example, a person offered a power of attorney must either accept it, or (within seven business days) request certain information such as an English translation, or an opinion of counsel as to “whether the agent is acting within the scope of the authority granted by the power of attorney.” Once the requested information has been presented, the person requesting it must then accept the power of attorney within five business days unless the information given “provides a substantial basis for making a further request.”
These procedures are new to Pennsylvania law, and it will no doubt take some time for banks, and other institutions who regularly receive requests from agents acting under powers of attorney, to learn the new rules. One new rule of particular significance is that a “person may not require an additional or different form of power of attorney for authority granted in the power of attorney presented.” Our clients have had legitimate requests for action denied because a company said “you have to use our power of attorney form.” That always struck us as contrary to the Pennsylvania statute. Now it clearly is.
Changes effective January 1
The most noticeable change effective on the first day of 2015 is the change in the power of attorney form itself.
For the past 15 years, the statute has required a “Notice” form that must precede every power of attorney, informing the person signing it (called the “principal”) that the POA gives “the person you designate (your “agent”) broad powers to handle your property, which may include powers to sell or otherwise dispose of any real or personal property without advance notice to you or approval by you.” The form also gives a brief explanation of the agent’s powers and duties. The principal must sign this form, acknowledging that he or she has read it (or had it explained) and understands it.
The new law still requires that form, but it must now contain additional language explaining more about the agent’s duties and informing signers that “the law permits you, if you choose, to grant broad authority to an agent under 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 death.”
Similarly, the law has also required the POA agent to sign an “Agent Acknowledgement” form stating that the agent has read the POA and agrees to certain conduct when acting under it. The new law changes this form as well. It now reads that the agent agrees to “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 or attorney.”
These changes in the POA form reflect the new statute’s changes in the rules POA agents must follow and the rules under which POA signers can give authority to the agent. The new law identifies a number of specific powers that may only be given to a POA agent if they are given “expressly.” These powers include the power to:
• Give away money or property without receiving fair market value in return. • Create, amend, revoke, or terminate most kinds of trusts.
• Create or change a beneficiary designation.
• Create or change rights of survivorship.
• Disclaim property, including a power of appointment.
• Waive the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan.
• Delegate authority granted under the power of attorney.
• Exercise fiduciary powers that the principal has authority to delegate.
These are powers that probably have the greatest potential for abuse in the hands of an unscrupulous agent. The new law also adds significant new rules about the duties POA agents must follow. No matter what the POA says, an agent must now always:
• Act in accordance with the principal’s reasonable expectations to the extent actually known by the agent and, otherwise, in the principal’s best interests.
• Act in good faith.
• Act only within the scope of authority granted in the power of attorney.
Under the new rules, an agent has a list of duties that must be followed unless the POA provides differently. In other words, these duties may be waived in the POA. These include the duty to:
• Keep the agent’s funds separate from the principal’s funds (unless they were not kept separate before, or the principal mingles the funds later).
• Keep a record of all receipts, disbursements and transactions made on behalf of the principal.
• Attempt to preserve the principal’s estate plan, to the extent actually known by the agent, if preserving the plan is consistent with the principal’s best interest based on all relevant factors.
• Act with the care, competence and diligence ordinarily exercised by agents in similar circumstances.
An agent must disclose “receipts, disbursements or transactions conducted on behalf of the principal” when ordered by a court, or upon request by the principal; a government agency having authority to protect the welfare of the principal; or by a guardian, conservator, or “another fiduciary acting for the principal.” Upon death of the principal, the agent must disclose such information to the executor “or successor in interest of the principal’s estate.” If the agent follows the rules of the new law, an agent will not be liable if the principal’s property declines or if the principal’s estate plan is not preserved.
The essence of rules starting in 2015 is that a POA may give broad powers to give gifts of money and property, and make other substantial changes to the principal’s estate, but only if the POA gives those powers explicitly. Otherwise, the agent must refrain from making such changes and in any case must always act in accordance with the principal’s reasonable expectations and best interest.
The new statute contains a rule that will be enormously useful in the digital age: “a photocopy or electronically transmitted copy of an originally executed power of attorney has the same effect as the original” (except for the purpose of recording the power of attorney with a court or recorder of deeds).