Monday, July 02, 2007

"Super Powers" Under Examination

On June 4, 2007, Forbes Magazine published & posted an article entitled "Taming the Superpower", by Ashlea Ebeling. It was accompanied by a "sidebar" entitled "Healthy Precautions", by the same author.

The article was noted recently in postings made by attorneys subscribed to the listserv of the Elder Law Section of the Pennsylvania Bar Association not just because of its subject & relevancy.

The article quoted a well-respected Pennsylvania lawyer -- Robert Clofine, of York, PA -- for the proposition that a person's power of attorney document should not be underestimated, considering the formidable powers usually granted:

Is your power up to date? Check now. Too many otherwise diligent folks treat powers as an afterthought -- just another paper to be signed when updating a will or estate plan. That's a mistake.

"There's not a more powerful piece of paper you can sign," says Robert Clofine, a lawyer in York, Pa.
The article makes good points, which I summarize in my own words:
  • Powers of attorney should be kept "up-to-date" under state laws, which have been changing.
  • Powers for attorney can cover both health care decision making and also financial decisions for the maker, to be carried out by an agent.
  • A power of attorney can take effect immediately upon execution, or later in a "springing" fashion, upon the occurrence of an event, such as inability to make decisions.
  • As state laws change regarding powers of attorney, older documents are "grandfathered" to remain effective, despite the addition of statutory protections for the makers.
  • Powers for an agent to make gifts -- particularly "unlimited" gifts -- can be abused to the detriment of the maker. These decisions -- and others involving key assets like a house -- are better made by more than just one agent, acting alone.
  • An agent should not commingle assets administered under a power of attorney with the agent's own funds.
  • Standard forms might be suitable in simple situations; but customized forms, drawn by attorneys, can do better.

The article began with the telling of a story about the gift of a principal's house by an agent to himself using a power of attorney. The article continued:

Horror stories like these have prompted many states to rewrite their laws on financial powers of attorney. And more are likely to do so soon, spurred on by the National Conference of Commissioners on Uniform State Laws, which published a new model financial power of attorney law last fall -- its first such rewrite in 20 years. The new model has already been adopted by New Mexico and introduced in several other state legislatures.

The suggested new law clarifies the murky process, with the aim of heading off disputes and also making the law more uniform across states. As a grantor under the model law you must specify in advance exactly which powers you mean to give away by checking boxes to indicate whether you want the power holder to be able to make decisions about, for example, taxes, litigation and business operations. A special section of boxes marked "Caution" in boldface, highlights certain powers that, if given away, "could significantly reduce your property or change how your property is distributed at your death." Among them: making gifts, changing beneficiaries (say, on your life insurance or individual retirement account) and retitling bank accounts as joint accounts.

"We call these the 'hot powers' - - things that are really dangerous in the hands of an abuser," says Linda Whitton, the main drafter of the new proposed law. Ironically, Pennsylvania adopted a law requiring specific gifting authority back in 1999, well before Pesock signed over power to her husband. Unfortunately, her attorney used the old, vague form. * * *

We, in Pennsylvania, recognized in the mid-1990s that abuses were occurring through POAs under the prior version of Chapter 54 of the PA Probate, Estates & Fiduciaries Code. I served on the study & drafting subcommittee (6 members) constituted 1995 by the Decedents' Estate Laws Advisory Committee, of the Joint State Government Commission, that proposed those amendments. The changes were adopted by the Legislature & signed into law by the Governor as Act 39 of 1999. See: "Powers of Attorney" Report, dated November, 1998.

John J. ("Jack") Lombard, Esq., of Philadelphia, chaired that subcommittee. In February, 2007, that subcommittee was reinvigorated by the ACDEL-JSGC with ten members, some new to the group. We met on June 15, 2007, in Harrisburg. Further changes to Chapter 54 may be forthcoming, with the purpose of curbing abuse by agents under powers of attorney.

Will we, in Pennsylvania, follow the full proposal offered most recently by the National Conference of Commissioners on Uniform State Laws, as mentioned in the article?

That proposal is the
Uniform Power of Attorney Act (2006), approved by NCCUSL on July 13, 2006, described in a News Release entitled "New Act Updates the Rules on Powers of Attorney"
The Uniform Power of Attorney Act provides a simple way for people to deal with their property by providing a power of attorney that survives the incapacity of the principal and thus avoids the need to bring expensive and time-consuming guardianship or conservatorship actions to care for assets.

While the act is primarily a set of default rules that can be altered by specific provisions within a power of attorney, the act also contains safeguards for the protection of an incapacitated principal.

This act requires certain powers to be expressly and specifically conferred, eliminating questions about the agent’s authority. * * *
NCCUSL provides these links in a Summary of the Uniform Power of Attorney Act:
Final Act
Legislative Information Kit
Our Chair, Jack, wrote a 38-page Memorandum, dated December 31, 2006, supplemented on January 4, 2007, with eight lengthy exhibits, to the Elder Law Committee of the American College of Trust & Estate Counsel, expressing deeply-felt & well-researched opposition to certain elements of the new Uniform Power of Attorney Act.

He views it as "a fundamental reversal of the concept expressed in the 1979 Uniform Act and particularly the original provisions in Section 501 and 502 of the Uniform Probate Code which first introduced the concept of durable powers into American jurisprudence."

He is concerned with provisions "which allow many so-called 'interested persons' standing to bring court proceedings involving the principal either to cause the enforcement of the power; to seek an interpretation of the power; or to examine the conduct of the agent --
even when the principal was competent."

Such sweeping changes are contained in Section 116, which is viewed by Jack as intended "to prevent the abuse which they perceived as rampant and in need of drastic correction." He notes:

As I understand the position of the Commissioners, the Durable Power of Attorney statutes in the 50 states should become, in large measure, a protective proceeding statute from which there should be no permissible escape using Section 116.
Which is worse: A super-power, or no personal sovereignty?

Consider Jack's severe warning:
In my opinion, while there are positive provisions in the new Act, the negative aspects will undermine the utility of the Durable Power as we know it and will also undermine the uniformity of the concept as it has been accepted in most American jurisdictions. This will be particularly so if some jurisdictions adopt the Act as a matter of regular practice of adopting all Uniform Acts, while others will not, recognizing its shortcomings. * * *

Any state considering the adoption of the new Uniform Act must recognize what a drastic change is envisioned in the use of the durable power concept that has received overwhelming approval in the last 35 years. * * *