NEW POWER OF ATTORNEY STATUTE AFFORDS MORE PROTECTION FOR POTENTIALLY VULNERABLE; SUPREME COURT AFFORDS LESS PROTECTION UNDER GUARDIANSHIP STATUTE
By: Mary Jane Barrett, Esquire, Feldman and Feldman
A. LEGISLATURE REVISES POWER OF ATTORNEY STATUTE
Powers of attorney, apparently viewed by the legislature as potentially dangerous instruments, are now subject to more consumer protection style warnings and safeguards. A stylistic but symbolic change in terminology from the legally precise "attorney-in-fact" to the more common usage term "agent" headlines the revised Chapter 56 of the Probate, Estates and Fiduciaries Code, signed into law as Act 39 on October 12, 1999, effective in 60 days, except as noted below.
Additional significant changes were made in three areas for newly executed instruments: (1) the principal must now sign a capitalized notice attached to the front of the document which states in basic language the powers being conferred on the agent; (2) the agent must sign an acknowledgment of reciprocal obligations to the principal prior to exercising authority; and (3) the power to make unlimited gifts must be explicit, and will not be inferred from general language which incorporates all statutory powers.
1. Notice to the Principal
Although not mandated until six months after the date of enactment, the statute requires the principal to sign a statutory notice in capital letters to be attached to a power before execution, which states:
THE PURPOSE OF THIS POWER OF ATTORNEY IS TO GIVE THE PERSON YOU DESIGNATE (YOUR"AGENT") BROAD POWERS TO HANDLE YOUR PROPERTY, WHICH MAY INCLUDE POWERS TO SELL OR OTHERWISE DISPOSE OF ANY REAL OR PERSONAL PROPERTY WITHOUT ADVANCE NOTICE TO YOU OR APPROVAL BY YOU.
THIS POWER OF ATTORNEY DOES NOT IMPOSE A DUTY ON YOUR AGENT TO EXERCISE GRANTED POWERS, BUT WHEN POWERS ARE EXERCISED, YOUR AGENT MUST USE DUE CARE TO ACT FOR YOUR BENEFIT AND IN ACCORDANCE WITH THIS POWER OF ATTORNEY.
YOUR AGENT MAY EXERCISE THE POWERS GIVEN HERE THROUGHOUT YOUR LIFETIME, EVEN AFTER YOU BECOME INCAPACITATED, UNLESS YOU EXPRESSLY LIMIT THE DURATION OF THESE POWERS OR YOU REVOKE THESE POWERS OR A COURT ACTING ON YOUR BEHALF TERMINATES YOUR AGENT'S AUTHORITY.
YOUR AGENT MUST KEEP YOUR FUNDS SEPARATE FROM YOUR AGENT'S FUNDS.
A COURT CAN TAKE AWAY THE POWERS OF YOUR AGENT IF IT FINDS YOUR AGENT IS NOT ACTING PROPERLY.
THE POWERS AND DUTIES OF AN AGENT UNDER A POWER OF ATTORNEY ARE EXPLAINED MORE FULLY IN 20 PA.C.S. Ch. 56.
IF THERE IS ANYTHING ABOUT THIS FORM THAT YOU DO NOT UNDERSTAND, YOU SHOULD ASK A LAWYER OF YOUR OWN CHOOSING TO EXPLAIN IT TO YOU.
I HAVE READ OR HAD EXPLAINED TO ME THIS NOTICE AND I UNDERSTAND ITS CONTENTS.
Although the Notice is said to be mandatory, the failure to affix the Notice does not render the power of attorney void, but merely shifts the burden to the agent, if challenged, to demonstrate that the exercise of his authority is proper. As a practical matter, however, third parties may refuse to honor a power executed after April 12, 2000 without the signed Notice.
2. Acknowledgment of Agent
The statute codifies the decisional law, which states that an agent acting under a power of attorney has a fiduciary relationship with the principal, unless a contrary intent appears in the statute. The Agent must also sign an acknowledgment of fiduciary duties prior to exercising any authority under the power, in substantially the following form:
I, _______________ , have read the attached power of attorney and am the person identified as the agent for the principal. I hereby acknowledge that in the absence of a specific provision to the contrary in the power of attorney or in 20 Pa.C.S. when I act as agent:
I shall exercise the powers for the benefit of the principal.
I shall keep the assets of the principal separate from my assets.
I shall exercise reasonable caution and prudence.
I shall keep a full and accurate record of all actions, receipts and disbursements on behalf of the principal.
The agent's acknowledgment need not be executed at the time the principal executes the power of attorney, but must be executed prior its use.
The power of an agent to make unlimited gifts must now be explicit; a reference to all statutory powers will include only the power to make limited gifts. A limited gift may be outright or in trust, may follow an unequal pattern of gift making, and may be made only to the principal's spouse, issue and spouses of issue, including the agent, if in the specified class. Gift-splitting with the spouse of the principal is specifically permitted. Tuition and medical care gifts may also be made to permissible donees to the extent that the gift is excluded as a transfer under federal gift tax law. Only limited gifts are among the enumerated statutory powers which can be incorporated by reference into the instrument, thus effectively nullifying Reifsneider Estate, 610 A.2d 958 (Pa. 1992), which held that broad gift-making powers would be implied if all statutory powers were incorporated. A court may nevertheless determine whether a gift is consistent with prudent estate planning or the intent of the principal.
Agents may be authorized to make anatomical gifts following the death of the principal, an exception to the automatic termination of an agent's authority upon the death of the principal.
In addition to codifying the fiduciary powers of an agent, the statute provides that the agent may receive reasonable compensation in the absence of a contrary intent.
The execution of powers of attorney in the existing statute expressly provides for signature by mark, but makes no reference to signature by another; the revised statute specifically authorizes a principal to direct a third party to execute a power on the principal's behalf, provided two witnesses sign other than the person signing for the principal.
Under existing law, the appointment of a spouse as attorney-in-fact was revoked by a decree of divorce. The revised statute provides that the filing of a complaint in divorce revokes the appointment of a spouse as agent, unless it appears that the designation was intended to survive such an event.
The revised statute contains a new provision stating that powers of attorney executed in another state or jurisdiction and in conformity with the laws of that state or jurisdiction shall be considered valid in Pennsylvania, except to the extent that the power of attorney would allow an agent to make a decision inconsistent with the laws of this Commonwealth.
5. Effective Dates
The statute is effective 60 days after enactment, or December 12, 1999, for powers of attorney executed on or after that date, except for the notice and acknowledgment provisions, which take effect six months after enactment. Significantly, a savings clause provides that the repeal of the prior statutory provision relating to unlimited gifts does not affect the authority of an agent to make unlimited gifts under a power of attorney executed before the effective date of the repeal.
6. Jurisdiction and Accounting
The Orphans' Court Division, which previously had nonmandatory jurisdiction over proceedings involving powers of attorney, will now have mandatory jurisdiction. The court is empowered to find liability for gifts as equity and justice may require, to the extent that a gift is inconsistent with prudent estate planning or financial management for the principal or is inconsistent with the known or probable intent of the principal with respect to the disposition of the estate.
B. SUPREME COURT CONSTRUES GUARDIANSHIP STATUTE IN PEERY ESTATE--
NEED FOR GUARDIAN, NOT ACTUAL CAPACITY, IS PARAMOUNT ISSUE
In Peery Estate, 727 A.2d 539, decided March 25, 1999, the Supreme Court limited the application of the 1992 guardianship act by refusing to require a finding of incapacity unless the need for a guardian was first established. The petition for an adjudication of incapacity had been brought by the brother of Patricia Anne Peery, a 60 year old woman. Few facts are provided in the opinion, but it may be speculated that she was living in a group home and received minimal public benefits. The trial court found that Ms. Peery was satisfied with her living arrangements and did not want to see her brother. The Supreme Court affirmed the Orphans' Court holding that it need not determine whether she could manage her personal financial resources or meet essential requirements for health and safety. Instead, it agreed that whether or not a person is de facto incapacitated, she could not be deemed "incapacitated" under the statute where, despite her mental impairment and low I.Q., her need for a guardian was counterbalanced by a network of devoted friends or family.
The Supreme Court explicitly rejected the Superior Court's seemingly appropriate reasoning in remanding for the trial judge to make separate findings as to (1) incapacity, (2) the need for a guardian and, then, (3) the identity of the most suitable guardian. The Supreme Court acknowledged that the statutory definition of incapacitated person is limited to the first inquiry, i.e. whether an impairment affects the person's "ability to receive and evaluate information effectively and communicate decisions in any way ... to such a significant extent that he is partially or totally unable to manage his financial resources or to meet essential requirements for his physical health and safety." It then looked further to the requirement for specific findings for determination of incapacity as set forth in 20 Pa.C.S. §5512.1, including, "(3) The need for guardianship services, if any, in light of such factors as the availability of family, friends and other supports to assist the individual in making decisions...." It concluded that, "The critical fact is whether or not the alleged incapacitated person needs a guardian. If the court finds that a person does not need a guardian, it does not matter whether he is incapacitated--the court cannot proceed to the appointment of a guardian...." The Court did not look to whether Ms. Peery could manage her personal financial resources or meet essential requirements for health and safety on her own, but looked to whether she "has in place a circle of support to assist her in making rational decisions concerning her personal finances and to meet essential requirements of health and safety." In essence, the Court elevated the need for guardianship services in light of the available support system to the status of a "super finding," which obviates the need for other findings.
If Ms. Peery had had substantial financial resources, the need for the formal protections of guardianship may have been deemed greater. Unfortunately, the Supreme Court failed to offer meaningful guidance as to the various considerations to be weighed in reaching the ultimate decision as to the need for guardianship in various circumstances and failed to require full articulation of its findings by the trial court.
C. TRUSTING THE CIRCLE OF SUPPORT
While the revised power of attorney statute is no doubt well-intended, it may be wondered whether it evidences an attitude that persons executing powers, in particular the elderly, should be treated as de facto children, who must be protected from themselves. On the other hand, the Peery decision is troubling, despite a probably correct outcome, because it suggests that even persons otherwise agreed to be incapacitated do not need legal protectors unless a problem has already emerged in the support system. The Supreme Court's "hands off" approach for functionally incapacitated persons suggests that informal supports should be left alone without detailed scrutiny, placing trust in an informal "circle of support" which is not readily accountable. At the same time, the legislature has imposed a more "hands on" approach for the protection of persons, who presumably have full capacity when they execute powers of attorney, and has determined that the "circle of support" should be depended upon only when accompanied by warnings and restrictions, and when made accountable to the court.
The Peery decision and the new power of attorney statute serve as interesting bookends to the ongoing struggle between maintaining the highest level of personal rights for the disabled and the highest level of protection for the vulnerable.