Pennsylvania has enacted broad changes to the law governing powers of attorney. House Bill 1429 (HB 1429) was unanimously passed by the state House and Senate and was signed into law by the Governor on July 2, 2014 (as Act 95). The revisions are the culmination of over 3 years of work and negotiation by interested groups, including the Pennsylvania Bankers Association, the Pennsylvania Association of Elder Law Attorneys (PAELA), the Pennsylvania Bar Association, the Joint State Government Commission, and the legislative staffs of Senator Greenleaf and Representative Keller.
HB 1429 revises Title 20 Chapter 56 (20 Pa.C.S. §§ 5601 – 5612) – the law which governs powers of attorney (POAs) used for financial and property transactions. [Sections 5601 (e.1) and (e.2) provide limitations on the applicability of certain sections of Chapter 56 in commercial transactions and in powers of attorney that provide exclusively for health care or mental health decision making.] Many of the changes draw on the Uniform Power of Attorney Act. But HB 1429 includes some provisions that are unique to Pennsylvania law.
The purpose of this article is to provide an overview of some of the changes made by the new law that are significant from the perspective of an elder law attorney. Chapter 56, as revised by HB 1429, is complex law which requires careful study by any attorney who drafts POAs in Pennsylvania.
Section 1 of HB 1429 modifies the execution requirements for POAs. For POAs executed on or after January 1, 2015:
- A POA may be signed by another person on behalf of the principal only if the principal is unable to sign and specifically directs the other individual to sign. [§ 5601(b)(1)]
- The signature or mark of the principal must be acknowledged before a notary public or other individual authorized to take acknowledgments. [§ 5601(b)(3)(i)]
- All POAs must be witnessed by two individuals neither of whom is the agent, or an individual who signed the POA on behalf of and at the direction of the principal, or the notary or other person authorized to take acknowledgments before whom the POA is acknowledged. [§ 5601(b)(3)(ii)]
- The Notice that the principal is required to sign under 20 Pa.C.S. § 5601(c) is modified. Language is added to warn that the document may grant the agent the power to give away the principal’s property or change how the property is distributed at death. The principal is advised to seek the advice of an attorney at law before signing the POA.
- The acknowledgment form that the agent signs under 20 Pa.C.S. § 5601(d) is revised to specify that the agent must act in accordance with the principal’s reasonable expectations to the extent that the agent actually knows them and, otherwise, in the principal’s best interest. The form notes that the agent must act in good faith and only within the scope of authority granted to the agent by the principal in the power of attorney.
Note that the above requirements of a notary, notice, agent’s acknowledgment (and the provisions in section 5601.3 relating to an agent’s duties) do not apply to a POA which exclusively provides for making health care decisions or mental health care decisions. [See 5601(e.2)].
Section 5601.3 relates to an agent’s duties. Section 5601.3(a) specifies the general rule: an agent must act in accordance with the principal’s reasonable expectations to the extent actually known by the agent and, otherwise, in the principal’s best interest. The agent must act in good faith (which means “honesty in fact”) and only within the scope of authority granted in the power of attorney.
In addition to the general rule duties, section 5601.3(b) lists other duties that can be modified or waived entirely in the power of attorney. These default duties include acting loyally for the principal’s benefit; keeping the agent’s funds separate from the principal’s (with some stated exceptions); acting with care, competence and diligence; keeping records; cooperating with a person who has authority to make health care decisions for the principal; and attempting to preserve the principal’s estate plan.
The lawyer drafting a POA will want to carefully consider whether any or all of these default duties should be modified or waived entirely. For example, if the client wants his child/agent to have the authority to commingle funds with those of the principal after the date of execution of the POA, this authority can be provided in the document.
The agent’s default duty to attempt to preserve the principal’s estate plan is of some significance to elder law attorneys who are called on to advise agents about the propriety of actions intended to qualify the principal for Medicaid, VA benefits, or some other program. Transfers of assets may facilitate such eligibility.
Section 5601.3(b)(6) specifies that the agent shall 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 all of the following:
(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.
(iv) Eligibility for a benefit, a program or assistance under a statute or regulation.
Elder law attorneys know that many of their clients want to authorize their agents to have the authority to act in a manner that will facilitate eligibility for public benefits programs. Thus, inclusion of language which recognizes that public benefits eligibility is an appropriate factor to be considered by the agent was a goal of PAELA. The drafters of the Uniform Power of Attorney Act agree. Section 5601.3(b)(6)(iv) is drawn directly from section 114(b)(6) of the Uniform Act.
Nonliability of an agent
Section 5601.3(c) puts limitations on the liability of an agent. For example, 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. And, absent a breach of duty to the principal, an agent shall not be liable if the value of the principal’s property declines.
Disclosure of receipts, disbursement or transactions
Section 5601.3(d) puts limits on the required disclosure of receipts, disbursements or transactions conducted by an agent on behalf of a principal. These limits can be modified in the POA.
Authority that requires specific and general grant of authority
Section 5601.4(a) limits the power of an agent to take certain actions unless authority is expressly granted in the POA and is not prohibited by another instrument. These “hot power” or “express grant” actions that must be specifically authorized are:
(1) Create, amend, revoke or terminate an inter vivos trust other than as permitted under section 5602(a)(2), (3) and (7) (relating to form of power of attorney).
(2) Make a gift.
(3) Create or change rights of survivorship.
(4) Create or change a beneficiary designation.
(5) Delegate authority granted under the power of attorney.
(6) Waive the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan.
(7) Exercise fiduciary powers that the principal has authority to delegate.
(8) Disclaim property, including a power of appointment.
Section 5601.4(b) further limits the exercise of hot power authority by agents who are not in certain family relationship with the principal. However, a POA can be written to specifically opt out of these limitations.
Sections 5601.4(a) and (b) will require careful drafting by the lawyer whose client wants to authorize their agent to have one or more hot powers.
Section 5603(a.1) redefines the power to make limited gifts. Unless the power of attorney otherwise provides, language in a power of attorney to make limited gifts or language granting general authority with respect to gifts only authorizes the agent to make gifts in the limited situations described in this section.
Third party acceptance, reliance and liability
Section 5608 addresses the PA Supreme Court decision in Vine v. Commonwealth State Employees’ Retirement Board, 9 A.3d 1150 (Pa. 2010). That case involved the statutory immunity afforded to third parties that act in good faith on the instructions of an agent pursuant to a facially valid POA without actual knowledge that the POA is void or voidable, has expired, or that the agent is exceeding the scope of his authority. HB 1429 legislatively reverses the Vine court’s interpretation of section 5608.
Section 5608 will now provide broad protection for banks and other third parties who in good faith accept a POA. For example, a person who in good faith accepts a POA without actual knowledge that a signature or mark is not genuine may, without liability, rely upon the genuineness of the signature or mark [section 5608(c)].
Section 5608 goes well beyond a “Vine fix” and provides third parties who are asked to accept a POA with a number of options including the right to request additional information and documentation such as an agent’s certification of factual matters, an English translation of the document, and an opinion of counsel that the agent is acting within the scope of the authority granted.
Section 5608.1 rewrites the law on the subject of the liability of a third party for refusal to accept a POA. (Elder law attorneys may prefer the old law on this issue, but it is now history). Sections 5608.1(b) and (d) list various circumstances under which acceptance may not be required.
Under section 5608.1(c) a person who refuses to accept a POA in violation of section 5608 shall be subject to:
(1) Civil liability for pecuniary harm to the economic interests of the principal proximately caused by the person’s refusal to comply with the instructions of the agent designated in the power of attorney.
(2) A court order mandating acceptance of the power of attorney.
Section 5608.2 provides for actions taken by employees of third parties. A person who conducts activities through employees shall be considered to be without actual knowledge of a fact relating to a power of attorney, a principal or an agent, if the employee conducting the transaction involving the power of attorney is without knowledge of the fact.
The amendment or addition of §§ 5601(f), 5608, 5608.1, 5608.2, 5611 and 5612 take effect immediately upon the Governor’s signature. The remainder of the sections of the new law will take effect on January 1, 2015.