Pennsylvania’s New Power of Attorney Law: What You Need to Know
What Does Pennsylvania’s New Power of Attorney Law Mean?
You may have heard that the law governing Powers of Attorney in Pennsylvania has changed. Act 95 was enacted on July 2, 2014. It modifies Chapter 56 of Title 20 of the Pennsylvania Consolidated Statutes, the statute that governs powers of attorney for financial and property transactions. The changes do not affect any power of attorney that is limited to healthcare choices. Some parts of Act 95 are already in effect; other changes will take effect on January 1, 2015.
The purpose of a power of attorney is to give another person – your agent – the power to make financial and property transactions for you. The term used for the person signing the power of attorney is the “principal.”
There are too many changes for me to address in this blog. My intent is to give you an overview and discuss the most significant provisions of the new law. If you’d like to know more, you may want to view the new law in its entirety on the legislature’s website at: http://www.legis.state.pa.us/WU01/LI/LI/US/PDF/2014/0/0095..PDF. And, of course, consult an attorney to discuss your specific situation.
Changes to the Form and Execution of a Power of Attorney – effective January 1, 2015
Beginning in January, a power of attorney executed in Pennsylvania must be signed in front of a notary and two adult witnesses. This rule applies only to powers of attorney executed after January 1. It does not apply to powers of attorney that were executed prior to that date, so if you have a power of attorney that you’ve been using, you may continue to use it. When it is time to sign your new power of attorney, be sure to bring your state-issued ID with you to show the notary.
Also on January 1, 2015 the language of the state-required notice to the principal and acknowledgement of the agent changes. For years, the first page of a Pennsylvania power of attorney has been a notice to the principal, which is the legislature’s attempt to make sure that everyone who signs a power of attorney is aware of what a powerful document it is. It is extremely important for a principal to know that he or she is giving the agent a large amount of control (or potential control) over his or her finances, either right away or at a later time when the principal becomes incapacitated. One of the required new statements in the Notice exemplifies the potential reach of a power of attorney: “It is possible for a principal to give the agent authority to give away all of the principal’s property during the principal’s life or to substantially change how the principal’s property will be distributed at his or her death.” The Notice is meant to advise principals not to sign a power of attorney unless they understand the document and that it reflects their intent.
The state also requires that an agent sign a document acknowledging that the agent knows and is willing to comply with the responsibilities of being an agent, which are discussed in more detail below.
Changes to the Duties of an Agent – effective immediately
Under the new law, there are some agent’s duties that are mandatory, meaning that the principal cannot waive or modify how these duties apply to their agents. These three requirements are that the agent must: (1) 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; (2) act in good faith; and (3) act only within the scope of authority granted in the power of attorney.
In addition, unless specifically modified in the power of attorney, an agent must:
(1) Act loyally for the principal’s benefit.
(1.1) Keep the agent’s funds separate from the principal’s funds unless:
(i) the funds were not kept separate as of the date of the execution of the power of attorney; or
(ii) the principal commingles the funds after the date of the execution of the power of attorney and the agent is the principal’s spouse.
(2) Act so as not to create a conflict of interest that impairs the agent’s ability to act impartially in the principal’s best interest.
(3) Act with the care, competence and diligence ordinarily exercised by agents in similar circumstances.
(4) Keep a record of all receipts, disbursements and transactions made on behalf of the principal.
(5) Cooperate with a person who has authority to make health care decisions for the principal to carry out the principal’s reasonable expectations to the extent actually known by the agent and, otherwise, act in the principal’s best interest.
(6) 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, including:
(i) The value and nature of the principal’s property.
(ii) The principal’s foreseeable obligations and need for maintenance.
(iii) Minimization of taxes, including income, estate, inheritance, generation-skipping transfer and gift taxes.
Some agents, especially those that are selected by the principal specifically for either special skills or expertise, can be held to even higher standards.
These are a lot of duties, and sometimes difficult to carry out. Agents should always be keenly aware of these duties, and seek legal counsel when it is unclear how to proceed. However, the new law limits the liability of an agent as follows:
(1) An agent that acts in good faith shall not be liable to a beneficiary of the principal’s estate plan for failure to preserve the plan.
(2) An agent that acts with care, competence and diligence for the best interest of the principal shall not be 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.
(3) Absent a breach of duty to the principal, an agent shall not be liable if the value of the principal’s property declines.
(4) An agent that exercises authority to delegate to another person the authority granted by the principal or that engages another person on behalf of the principal shall not be liable for an act, error of judgment or default of that person if the agent exercises care, competence and diligence in selecting and monitoring the person.
Changes to the Duty to Accept a Power of Attorney – immediately effective
Pennsylvania banks are pleased with the new law’s implications for the duty to accept a power of attorney and the liability for not accepting a power of attorney. The changes not only protect banks and other financial institutions, but anyone who is asked to accept the decisions of an agent. Everything contained in this section with regard to banks and bankers applies equally to any other individual or business asked to accept a power of attorney.
If the bank does not know that the power of attorney is void, invalid or terminated, it “may, without liability, rely upon the power of attorney as if the power of attorney and the agent’s authority were genuine, valid and still in effect and that the agent had not exceeded and had properly exercised the authority [granted] by the power of attorney.” Furthermore, if the banker requests, he or she may obtain a certification or affidavit confirming the factual matters concerning the principal, agent or power, an English transaction of a document in a foreign language, and/or an attorney’s written opinion regarding whether the agent is acting within the scope of authority granted. But, even if the agent supplies the document(s) requested, the banker may still refuse to accept the power of attorney if he “in good faith believes that the power is not valid or the agent does not have the authority to perform the act requested.” The new law also limits the liability and economic exposure of those who wrongfully refuse to accept a valid power of attorney.
Originals and Copies
The new law provides that for every purpose except filing or recording the power of attorney with the Orphans’ Court or Register of Deeds, a copy of a power of attorney has the same effect as an original. We usually provide our clients with a couple of originals and a couple of copies of their powers of attorney. I always tell clients to use a copy if at all possible. This becomes especially important if the principal becomes incapacitated and cannot execute another power of attorney. This new law clarifies for everyone that a copy of a power of attorney should be accepted by anyone except the Orphan’s Court or the Recorder of Deeds.
If you have any questions about your existing power or attorney or estate plan, or would like to sign a power of attorney and put an estate plan in place today, please contact Timoney Knox, LLP.