Beginning on January 1, 2015, all financial Powers of Attorney executed in Pennsylvania must adhere to new requirements set forth under House Bill 1429, Printer’s No 3708 (approved as Act 95 of 2014 on July 3, 2014). Act 95 applies only to financial powers of attorney (including commercial powers of attorney and confessions of judgment), regardless of whether they are effective immediately or springing (effective at a later date). The new law does not affect health care power of attorneys or advanced health care directives (living wills), nor does it affect financial powers of attorney executed before January 1, 2015. Even though Act 95 does not disturb financial powers of attorney executed before the law went into effect, now is a great opportunity to examine your current power of attorney to determine if it still accurately memorializes the powers you wish your agent to be able to wield on your behalf. If you do not have a financial power of attorney, there is no time like the present to have one prepared by an estate-planning attorney. This article will discuss the importance of having a financial power of attorney and the major impacts Act 95 has on financial powers of attorney.
In general, a financial power of attorney allows the person named as the agent to have broad financial powers to undertake financial transactions in the name of the principal (person whose benefit the power of attorney is for) and on the principal’s behalf. For all intents and purposes, the person named as the agent steps into the shoes of the principal and conducts financial transactions on his or her behalf if the principal is unable. A financial power of attorney can avoid guardianship proceedings to determine who will be in charge of the principal’s finances if he or she is later determined to be mentally incapacitated.
Guardianship proceedings can be costly and time consuming, and while the litigation is pending, often times bills do not get paid and financial decisions are on hold, which can cause more problems for the principal and his or her family that can easily be avoided. This situation can be even more disastrous if the principal is a small business owner and no one else in the company has authority to handle the financial affairs of the business. A financial power of attorney also can be used for the convenience of the principal, for instance, if a financial transaction needs to take place in a timely manner and the principal is on vacation, the agent can handle the matter without delay.
At first blush, most people find it hard to fathom giving a person the potential power to dispose of all of their property without advanced notice to them. However, it is important to remember that at all times (whether you have an older power of attorney or are executing one that adheres to Act 95) an agent must act in the best interest of the principal and not for the agent’s own financial gain. Otherwise, the agent could be subject to both criminal and civil penalties.
A financial power of attorney can be limited to allow only a specific type of financial transaction to be undertaken by the agent, for example, the power to sell a specific car. Or, a financial power of attorney can be broad to allow the agent to conduct any and all types of financial transactions on behalf of the principal. Some people, especially small business owners, may have several financial powers of attorney, one for personal affairs and one for business matters.
The new law requires that all documents executed after January 1, 2015 must be signed by two witnesses over the age of eighteen, neither of whom is the agent, and to be notarized. Since 1999, a Notice must precede every Pennsylvania financial power of attorney. The Notice, which appears in bold capitalized font, warns the principal of the powers being given to the agent in the document and summarizes the agent’s duties and responsibilities. Act 95 expands the warnings contained in the Notice, as well as stating the duties of the agent and the ability for the agent to dispose of all of the principal’s property during his or her lifetime or to substantially change the distribution of property at the principal’s death.
Act 95 also curtails certain powers an agent can have unless such authority is specifically set forth in the document. These particular types of powers include:
- the power to create or change beneficiary designations
- the power to create or change rights of a surviving spouse
- the power to disclaim an interest in property, which includes, but is not limited to, the power to renounce a power of appointment
- the power to waive the principal’s right to claim survivor benefits or waive beneficiary designations
- the power of the agent to delegate authority granted to the agent under the power of attorney to additional individuals
- the power to renounce or exercise fiduciary appointments that the principal has authority to delegate
The requirement to specifically state whether certain authority is granted to the agent adds another layer of protection to curb abuse and misuse by the agent. It also allows the power of attorney to be customized to the principal’s individual preferences and specific situation.
In Pennsylvania, for a financial power of attorney to become effective and in order to allow the agent the authority to act on behalf of the principal, the agent must sign an Agent’s Acknowledgement, which is affixed to the Power of Attorney. Act 95 revised the language required in the Agent’s Acknowledgment, specifically stating that the “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, act in good faith and act only within the scope of authority granted to the agent by the principal in the power of attorney.” It is important for a principal to speak with the agent about his or her expectations to ensure that both parties have a mutual understanding of the agent’s scope and authority to undertake actions on behalf of the principal.
Among other changes, the new law also allows people and financial institutions presented with a power of attorney the right to accept it, or within seven business days, the right to request additional information, such as, a translation of the document to English or an opinion of an attorney that the agent is acting within the scope and authority of the powers given in the document. Once the requested information is offered, the person or institution must accept the power of attorney within five business days, unless the additional information provides a substantial basis for further requests. A person or financial institution who accepts a power of attorney in good faith will not be held liable if the power of attorney is later determined to be invalid. This provision is intended to protect people relying on the validity of the power of attorney and to limit unnecessary inquiries and time delays regarding the authenticity of the document.
A financial power of attorney is a powerful document that can be utilized for the convenience of the principal and can be instrumental in ensuring that financial affairs are handled without interruption in the event the principal becomes mentally incapacitated without the need for judicial intervention. The new law is a response to a long history of concerns and requests by attorneys, financial institutions, financial advisors and other professionals to have the legislature provide more mechanisms to safeguard a principal’s assets from mistreatment and to restrict certain powers of an agent unless expressly granted in the document. This article highlights some of the most important amendments to the laws governing Pennsylvanian financial powers of attorney, but it does not address all of the changes. An estate-planning attorney should be consulted if you need a financial power of attorney or would like to update one to ensure your document conforms to the new law.