Durable Financial Power of Attorney
‘A “Power of Attorney” means a writing or other record that grants authority to an agent to act in the place of a principal…’ A durable power of attorney is a power of attorney that does not become ineffective upon the incapacity of the principal. This means that even though the principal no longer has the capability to act for themselves, his or her agent still has that ability. In Utah, a power of attorney is “durable” unless “it expressly provides that it is terminated by the incapacity of the principal.” Another common name for the agent role is an “attorney-in-fact”. While acting, an agent must act in accordance with the principal’s reasonable expectations to the extent actually known by the agent, act in good faith, comply with the terms of the power of attorney, and act only within the scope of the authority granted in the power of attorney.
EXECUTION OF A POWER OF ATTORNEY
For a power of attorney to be valid, it must “be signed by the principal or in the principal’s conscious presence by another individual directed to sign the principal’s name on the power of attorney before a notary or other individual authorized by the law to take an acknowledgment.” If a person other than the principal is signing on behalf of the principal, the signature block should be clear who is signing and that it is under the direction of the principal. It would also be wise to obtain independent person(s) to witness that that individual is signing on behalf of the principal as directed by the principal and that the principal had the capacity to direct the individual at the time of the signing.
“If a principal resides or is about to reside in a hospital, assisted living center, skilled nursing, or similar facility, at the time of execution of the power of attorney, the principal may not name any agent that is the owner, operator, health care provider, or employee of the hospital, assisted living facility, skilled nursing, or other residential care facility unless the agent is a spouse, legal guardian, or next of kin of the principal, or unless the agent’s authority is strictly limited to the purpose of assisting the principal to establish eligibility for Medicaid.”
WHEN DOES A POWER OF ATTORNEY BECOME EFFECTIVE?
“A power of attorney becomes effective when it is executed unless the principal provides in the power of attorney that it becomes effective at a future date or upon a future event or contingency.”
The most common contingency is the incapacitation of the principal. Determining whether the principal becomes incapacitated can be done in many ways such as upon determination of a spouse, upon determination of a spouse and a physician, upon determination of two or more physicians, etc… Incapacitation should also be clearly defined in the power of attorney.
Another option for having a power of attorney goes into effect is to have the principal sign a subsequent one-page authorization document, which is referred to by the durable power of attorney, to indicate that the power of attorney is going to become effective immediately. This is a nice option for a principal who does not need an immediate power of attorney but wants the option of having the document become effective down the road when the principal is not incapacitated. That way the principal doesn’t have to meet with an attorney and draft an entirely new power of attorney.
THE SCOPE OF THE POWER OF ATTORNEY
Determining the appropriate scope of a financial durable power of attorney can be somewhat difficult. The language of the document should be broad enough to encompass what is necessary but should not include power over property that could lead to abuse. A couple of specific sensitive powers are the power to make gifts on behalf of the principal and the power to modify the principal’s will or revocable living trust.
The gifting power can be very useful for persons who have large estates that could be subject to estate or gift tax and who would benefit from making gifts to descendants each year to take advantage of the annual gift exclusion amount. The gifting power has the potential to save significant wealth but must be done with caution and for good reason. The gifting power must be explicitly stated in the document for the agent to have the gifting power.
The powers to modify wills or revocable living trusts are also sensitive powers, and, like the gifting power, requires that the power has to be explicitly stated in power of attorney to be effective. If a trust or will is modified it could significantly change how assets of a deceased individual are distributed, which may result in something far from what the principal intended. However, this power is often extremely useful if an individual has neglected his or her estate planning and circumstances in life have significantly changed. Such a power could allow a surviving spouse to modify the will or trust to reflect the updated intent of a soon to be decedent.
Some of the more interesting powers often contained in powers of attorney are the power over digital assets, pets, mail, and gym memberships.
>MULTIPLE AND SUCCESSOR AGENTS
“A principal can designate two or more persons to act as co-agents. Unless the power of attorney otherwise provides, each co-agent may exercise its authority independently.” When one or more agents are appointed as co-agents, it may be in the best interest of the principal to make certain sensitive powers require both agents to act together to protect both the principal and the agents.
“An agent that does not participate in or conceal a breach of fiduciary duty by another agent, including a predecessor agent, is not liable for the actions of the other agent” so long as the agent notifies the principal when “the agent has actual knowledge of the breach or imminent breach of fiduciary duty by another agent.”
REASONABLE COMPENSATION FOR AGENCY SERVICES
“Unless the power of attorney otherwise provides, an agent is entitled to reimbursement of expenses reasonably incurred on behalf of the principal and to compensation that is reasonable under the circumstances.” Reasonable compensation is based on the quality, quantity, and value of the services rendered and the circumstances under which those services were rendered. This goes back to the old adage that says “pigs get fat, but hogs get slaughtered.”
ACCEPTANCE AND RELIANCE ON POWER OF ATTORNEY
A person that in good faith accepts a notarized power of attorney “without actual knowledge that the signature is not genuine may rely upon the presumption” that the power of attorney was properly executed by the principal and that the signature is genuine.
“A person [or institution such as a bank] that is asked to accept an acknowledged [notarized] power of attorney may request, and rely upon, without further investigation: (a) an agent’s certification under penalties of perjury of any factual matter concerning the principal, agent, or power of attorney, (b) English translation of the power of attorney if the power of attorney contains, in whole or in part, language other than English, and (c) an opinion of counsel as to any matter of law concerning power of attorney if the person making the request provides in writing or other records the reason for the request.”
Quite often, unsophisticated banks or other financial institutions will refuse to accept a durable power of attorney if the document is more than several years old claiming it is outdated and no longer valid. Nothing in the statute allows this and the banks or other institutions could be liable for damages caused by their failure to recognize a valid power of attorney. This situation is not unusual because durable powers of attorney are often prepared as part of a comprehensive estate plan years in advance of when they are unexpectedly needed.
LIABILITY FOR REFUSAL TO ACCEPT A NOTARIZED POWER OF ATTORNEY
A person is required to accept a notarized power of attorney or request a certification, translation, or opinion of counsel within 7 business days after presentation of the power of attorney for acceptance unless: (a) the person is not otherwise required to engage in a transaction with the principal for the same circumstance; (b) engaging in the transaction with the agent of the principal if the same circumstances would be inconsistent with federal law; (c) the person has actual knowledge of the termination of the agent’s authority or of the power attorney before exercise of the power; (d) a request for a certification, a translation, or an opinion of counsel is refused; (e) a person in good faith believes that the power is not valid or that the agent does not have authority to perform the act requested, whether or not a certification, a translation, or an opinion of counsel has been requested or provided; or (f) the person makes, or has actual knowledge that the person has made, a report to the Division of Aging and Adult Services stating a good faith belief 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.”
“A person who refuses to accept a notarized power of attorney is subject to a court order mandating acceptance of a power of attorney and liability for reasonable attorney’s fees and costs incurred in any action or proceeding that confirms the validity of the power of attorney or mandates acceptance of the power of attorney.” The Utah statute does not appear to make someone explicitly liable for damages that result for failure to accept a valid power of attorney.
USING A POA IN CONJUNCTION WITH A REVOCABLE INTER VIVOS TRUST
Both a revocable living trust and a durable power of attorney can be useful when an individual becomes incapacitated. There are, however, certain things that cannot be placed in a trust such as discussions with the IRS, Medicaid, and Medicare.
There are also times when a person, whether intentionally or unintentionally, has not fully funded his or her trust. This often is the result when a person purchases a new home and forgets to put it in the trust, or when a person intentionally leaves day-to-day checking accounts or vehicles outside the trust with the expectation that he or she holds less than $100,000 of probate assets and can simply have a personal representative use a small estate affidavit to retitle the assets in accordance with U.C.A. § 75-3-1201.
Lastly, there are non-probate assets such as 401(k)s, IRA, and life insurance which are governed by contract (designated beneficiaries) rather than probate. These items will generally be left out of a revocable living trust and require a durable power of attorney to adjust or work with if someone becomes incapacitated.
AN IMPORTANT DISTINCTION BETWEEN A POWER OF ATTORNEY AND AN INTER VIVOS REVOCABLE TRUST
There is an important distinction between an agent with a power of attorney and a trust relationship. Because a durable power of attorney is a principal-agent relationship that relationship automatically terminates when upon the death of the principal. This is much different than with a revocable living trust in which the successor trustee remains the principal of the trust relationship, which is why a revocable living trust can be used to avoid probate upon the death of the grantor.