A.
What
is Durable Power of Attorney (“DPA”)
1. A DPA may be used as an alternative to conservatorship for the management of the affairs of an incapacitated person.
a.)
Since DPAs are less expensive and time consuming than a conservatorship, they are very commonly
used.
b.)
A DPA is a
written instrument by which one person, a principal, appoints another person or
persons as his agent or agents (sometimes referred to as
“Attorney-in-Fact”).
c.)
The instrument
confers authority upon the agent to perform certain acts on behalf of the
principal.
d.)
The Power of
Attorney creates an agency relationship.
e.)
A Power of
Attorney that survives the principal’s incapacity is a Durable Power of
Attorney.
3.
General DPA
a.)
Grants the agent
authority to perform any act that the principal may delegate to an
agent.
4.
Limited DPA
a.) Limits the agent’s authority to one or more specific transactions.
1. There is a significant statistical likelihood that an individual will require assistance with the management of their affairs due to an incapacity.
a.) Approximately 54 million Americans – 21 percent of the total population – have a disability.
b.) There is a 58 percent probability that a 25 – year-old individual will become disabled for three (3) months or longer at some time during his or her life. Forty-year-old individuals have a 45 percent probability, and 55 year olds have a 23 percent probability of becoming disabled for three (3) months or longer at some point during his or her lifetime.
2. It is prudent to plan for the possibility that a client will suffer a period of extended disability.
3. Other clients will require assistance with the management of
their affairs because they will be physically unavailable for a period of
time.
a.) For example, military personnel may be overseas for
an extended period of time.
b.) Other clients, although legally competent and
available, will wish to delegate authority to an agent to manage their affairs.
4. The DPA provides an effective and economical means to
assist all of these types of individuals.
C. What Duties Do The Principal And Agent Owe Each Other
1. An agent is a fiduciary with respect to the authority granted by the DPA.
2. The duties the agent owes the principal include the following:
a.) the duty of care and skill;
b.) the duty of good conduct;
c.) the duty to give information;
d.) the duty to keep records;
e.) the duty to act only as authorized;
f.) the duty not to attempt the impracticable;
g.) the duty to obey instructions;
h.) the duty to avoid conflicts of interest;
i.) the duty to account for profits arising out of the agency;
3. The principal owes the following duties to the agent:
a.) the duty to compensate the agent;
b.) the duty to reimburse the agent for expenses incurred during the course of the agency;
4. It is very important that agents and principals understand these rules to avoid personal liability and litigation.
D. What Authority May Be Granted To An
Agent
1. A principal may authorize an agent to perform any act unless public policy or an agreement with another requires personal performance. The following is a listing of powers which may be conferred by a principal to an agent:
a.) make gifts;
b.) create a trust;
c.) renounce fiduciary positions;
d.) authorize admission to a medical, nursing, residential or similar facility and to enter into agreements for care;
e.) authorize medical and surgical procedures;
f.) to engage in banking and financial transactions;
g.) to receive government benefits;
h.) to make an anatomical gift of all or part of my body
2. A principal may provide for the appointment of more than
one Attorney-in-Fact who shall act jointly, severally or in any combination that the principal may delegate.
a.) If there is no such designation, such Attorney-in-Fact shall only act jointly;
b.) The appointment of one or more successor attorneys- in-fact;
c.) The delegation to an original or successor attorney-in-fact of the power to appoint his successor or successors.
E.
Does The Principal Have The Legal Capacity To
Execute A DPA
1.
In many cases, the principal will have some degree of cognitive
impairment.
2.
In order to execute a valid DPA, the principal must have the capacity to
consent to authorizing an agent to act on behalf of the
principal.
3.
The principal should understand that he is authorizing the agent to act
for the principal and that the principal will be legally bound by the agent’s
acts.
4.
A sliding scale to clients suffering some cognitive impairment is
typically used by many attorneys.
a.)
When the entire
family is in agreement with the need for the DPA and the DPA is customary and
does not provide authority to change the principal’s estate plan, a fairly low
level of capacity should be required.
b.)
When there is
disagreement among the
family or the agent is granted the authority to make gifts,
pay himself compensation or to change designations of beneficiaries, the
principal should have a higher level of capacity to ensure that he can consent
to the delegation of this authority.
1. A DPA that is unconditional is effective immediately on execution.
2.
Many DPAs become effective at:
a.)
A specified
time;
b.)
The occurrence
of a specified event;
c.)
The existence of
a specified condition which may occur in the future.
3.
The most common
triggering event for a springing DPA is
the
principal’s incapacity.
a.)
The springing
DPA should specify who determines that the triggering event has occurred and how
the determination is made.
4.
Springing DPAs have some practical problems.
a.)
Many principals
suffer a gradual decline in capacity, which makes it difficult to determine when
the triggering event has occurred;
b.)
Third parties,
such as title companies, are reluctant to accept spring DPAs.
5.
An alternative
to a springing DPA is for the principal to lodge
an
immediately effective DPA with an escrow agent.
a.)
The escrow
agreement provides that the escrow agent may deliver the DOA to the named
attorney-in-fact if a triggering event occurs.
6.
An immediately
effective DPA is easier for the agent to use
since
the agent will not have to prove that the triggering event has
occurred.
G.
Whom Should The Principal Designate As The
Agent(s)
1.
The most
important decision that the principal will make is
the
choice of the agent or agents.
2.
It is imperative that the principal spend a sufficient amount of time in
the selection of an appropriate person or persons to serve as the
agent(s).
3.
Many factors should be considered in choosing an agent
including:
a.)
Is the person
trustworthy?
b.)
Is the person
willing to serve?
c.)
Where the person
lives;
d.)
Does the person
have financial and investment experience?
e.)
Does the person
have conflicts of interest with the principal?
f.)
Does the person
have the time to serve?
g.)
If the person is
the principal spouse, is there a risk of divorce?
h.)
If the person is
one of the principal’s children, is there a risk of family
friction?
4.
To avoid family disputes, the DPA should address
the
following issues concerning the agent:
a.)
Is the agent
entitled to compensation?
b.)
Does the agent
have an obligation to act or does the DPA only create afford to
act?
c.)
Is the agent
prohibited from participating in acts in which the agent is
interested?
d.)
Is the agent
obligated to provide interested family members with information concerning the
agent’s actions under the DPA?
e.)
Is the agent
obligated to comply with the prudent investor rule?
f.)
Is the agent
responsible for errors in judgment?
H.
Should The Agent Be Authorized To Make
Gifts
1.
In
2.
The granting of authority to make gifts to an agent in a DPA can result
in unanticipated transfer tax consequences to the principal and/or the
agent.
3.
The granting of an unlimited power to make gifts in a DPA is not a
taxable gift as long as the DPA is revocable.
4.
When the agent exercises the gifting authority, the principal makes a
taxable gift.
5.
There is considerable uncertainty concerning whether the agent under a
DPA with the unlimited authority to make gifts holds a general power of
appointment.
6.
Property subject to a general power of appointment is included in the
estate of a deceased power holder or if the power is exercised, constitutes a
gift by the power holder.
II.
What
Situtations Provide Potential For Abuse Or Misuse of DPAs
1.
The inadequate
education of the principal
a.)
Frequently
principals will be advised by attorneys to execute DPAs with little education, discussion or
advice.
b.)
Some attorneys
draft DPAs and provide them to a child to have a
parent sign.
2.
The empowered
child
a.)
Unfortunately,
all siblings do not love or respect each other.
b.)
Frequently, when
one child is named as the agent, he will exclude the other children from
information or participation in decision making concerning the
parent.
c.)
This frequently
leads to litigation or family arguments.
d.)
A provision
should e included in the DPA requiring the agent to keep his siblings informed
and to consult with them on a regular basis.
3.
Misuse of the
DPA by the agent
J.
How Do You Increase Third Party Acceptance Of
The Agent’s Authority
1.
As third
parties have become more familiar with DPAs,
they
have
become more willing to accept them.
K.
What Laws Apply to the DPA
1.
Will be determined by reference to the laws of the state in which it is
executed.
2.
Federal law provides that DPAs for military
personnel are exempt from state form, substance, formality or recording rules
and must be given the same effect as if they have been prepared and executed in
accordance with applicable state law.
L.
Act 39 amended Chapter 56 of title 20 (the “Probate, Estates and
Fiduciaries Code”) by adding provision regarding powers of attorney and the
agents who administer them and by making conforming amendments to other
laws.
1.
Execution and
validity of POAs
a.)
Permits a POA to
be signed by the principal by signature or mark, or by another on behalf of and
at the direction of the principal.
(i)
If executed by
mark or by another
individual, then it must be witnessed by two individuals, each
of whom must be 18 years of age or older.
(ii) witness cannot be the individual who signed the power of
attorney on behalf of and at the direction of the
principal.
b.)
Similar provisions were enacted for HCPOA
2.
Validity of
foreign POAs
a.)
A POA executed
in another state or jurisdiction and in
conformity with the laws of that state or jurisdiction is valid
in
b.)
invalid to
extent allows agent to make a decision
inconsistent with the laws of Pennysylvania.
3.
Effect of
divorce upon agent
a.)
filing of an
action in divorce terminates a spouses
designation as agent for the other spouse.
b.)
previously, it
was the issuance of a divorce decree
which
terminated designation as agent.
4.
Anatomical
gifts.
a.)
for financial
matters, the authorization of an agent to act generally terminates with the
death of the principal;
b.)
The consummation
of a contemplated donation of organs by a principal can extend beyond the
principal’s death;
c.)
Agent can
consent either before or after the death of the principal;
d.)
Agent’s rights
under POA are superior over the next of kin to accomplish donation of the
principal’s organs in the event of a dispute;
5.
Statutory Notice
Execution Requirement
a.)
In
(i)
notice
is part of the POA to be accepted by the agent.
(ii)
Notice is to be
signed by the principal.
(iii)
Absence of the
signed notice goes to the burden of demonstrating that the exercise of authority
under POA by agent is proper.
(iv)
If POA does not
contain a signed notice provision, the agent carries the burden of demonstrating
the propriety of his actions taken under the POA; if signed, the burden of
demonstrating an agent acted improperly falls upon the person challenging the
act.
6.
Acknowledgment
by agent.
a.)
agent
is now required to execute a standard-form acknowledgement of duties prior to
being authorized to act as an agent.
b.)
Absent execution
of the acknowledgment, a nominated agent has no authority to act as an
agent.
c.)
Effective date
is
d.)
If POA executed
prior to
e.)
Execution of the
acknowledgment by the agent does not have to be at the same time when principal
executes the POA.
f.)
Acknowledgment
by agent does not have to be notarized.
7.
Compensation and
Reimbursement for agents
a.)
in the
absence of a specific provision to the contrary, agent is entitled to receive
reasonable compensation based on actual responsibilities assumed and
performed. Agent is also entitled
to be reimbursed for expenses incurred while performing
duties.
b.)
No “standby
fees” where no activities or responsibilities are undertaken by the
agent.
8.
Changes in
Powers to make gifts
a.)
for
POAs executed on or after
b.)
Repealed the
statutory authority for a principal to authorize an agent to make unlimited
gifts by reference.
c.)
Now, a principal
who intends to authorize an agent to make a gift under a POA must specifically
provide for same in the POA.
d.)
Did not affect
the authority of an agent to make unlimited gifts under a POA executed before