Durable Powers of Attorney: What They Are and Why All Clients Need Them
Author: Frances A. McCormick
Originally published in October 2019
Copyright © 2019 Knox McLaughlin Gornall & Sennett, P.C.
Durable Powers of Attorney
What is a Durable Power of Attorney?
A durable power of attorney is an essential estate planning tool, which can be utilized in many ways for the benefit of the principal. Under Pennsylvania statutory law, powers of attorney are presumed durable, meaning they do not become void upon the incapacity of the principal.
The purpose of a power of attorney is to give the agent broad powers to handle the principal’s property, which may include powers to sell or otherwise dispose of any real or personal property without advance notice or approval of the principal. A durable power of attorney may avoid the cost and inefficiency of incapacity proceedings and the statutory restrictions imposed on court appointed guardians for incapacitated persons as well as mandatory reporting requirements for guardians.
Springing Powers of Attorney vs. Immediately Exercisable Powers of Attorney
Springing Powers of Attorney: A principal provides that the power of attorney shall become effective at a specified future time or upon the occurrence of a specified contingency, including the disability or incapacity of the principal. Often used by principals who want to retain control of their affairs until they no longer have legal capacity to do so.
Immediately Exercisable Powers of Attorney: If no specified future time or event is provided for in the power of attorney, the powers delegated to the agent become effective immediately upon the execution of the power of attorney, regardless of the principal’s mental or physical capacity.
20 Pa.C.S.A. § 5601: For a Power of Attorney to be properly executed, the power of attorney must be dated and signed by the principal by signature or mark, or by another individual on behalf of and at the specific direction of the principal if the principal is unable to sign. A power of attorney, whether executed by the principal by signature or mark, or by another individual, shall be:
- Acknowledged before a notary public or other individual authorized by law to take acknowledgments. The notary public or other authorized individual shall not be the agent designated in the power of attorney.
- Witnessed by two individuals, each of whom is 18 years of age or older, and shall not be the individual who signed the power of attorney on behalf of the principal, the agent named in the power or attorney, or the notary public or individual authorized by law to take acknowledgments.
NOTE: This section does not prohibit an acknowledgment of a power of attorney before a member of the bar of the Pennsylvania Supreme Court, provided the attorney taking the acknowledgment does not act as one of the two witnesses required. Acknowledgment of a power of attorney before a member of the bar of the Pennsylvania Supreme Court must be in the manner authorized by 42 Pa.C.S. § 327(a) (relating to oaths and acknowledgments) certified in the manner provided by 57 Pa.C.S. § 316(2.1) (relating to short form certificates).
Notice: 20 Pa.C.S.A. § 5601(c) provides specific language that must be included in all capital letters at the beginning of the power of attorney. The notice explains the purpose of the power of attorney, the nature of the duty imposed by the power of attorney, the impact of limiting duration or revoking the power of attorney, how the agent must act with regard to the principal’s reasonable expectations, and advises the principal to seek the advice of an attorney to fully explain the extent of the authority granted to the agent by the power of attorney. Lastly, the notice must be acknowledged and signed by the principal. If the notice is not signed by the principal, and the agent’s authority is challenged, the agent bears the burden of demonstrating that the exercise of the agent’s authority is proper.
Acknowledgment Executed by Agent: An agent has no authority to act as agent under the power of attorney unless the agent executed and affixed an acknowledgment to the power of attorney. 20 Pa.C.S.A. § 5601(d) requires that the agent acknowledges that he/she is the person identified as the agent for the principal, and that the agent agrees to act in accordance with the principal’s reasonable expectations to the extent known by the agent and, otherwise in the principal’s best interest, as well as comply with duties imposed by Pennsylvania’s power of attorney law.
Limits on Applicability
The execution requirements, notice requirement, acknowledgment requirement, and the section relating to agent’s duties do not apply to:
- A power contained in an instrument used in a commercial transaction which authorizes an agency relationship.
- A power to the extent it is coupled with an interest in the subject of the power, including a power given to or for the benefit of a creditor in connection with a loan or other credit transaction.
- A power exclusively granted to facilitate transfer of stock, bonds and other assets.
- A power: Contained in the governing document for a corporation, partnership or limited liability company or other legal entity; Authorized by the law that governs the internal affairs of a legal entity; By which a director, shareholder, partner, member or manager authorizes others to do things on behalf of the entity; or Contained in a proxy or other delegation to exercise voting rights or management rights with respect to legal entity.
- A warrant of attorney conferring authority to confess judgment
- A power given to a dealer (As defined by the act of December 22, 1983 [P.L. 306, No. 84], known as the Board of Vehicles Act) when using the power in conjunction with a sale, purchase or transfer of a vehicle (As authorized by 75 Pa.C.S. § 1119, relating to application for certificate of title by agent).
- A power created on a form prescribed by a Commonwealth agency, political subdivision or an authority or instrumentality of the Commonwealth or a political subdivision.
Powers and powers of attorney exempted by this subsection need not be dated.
The subsections relating to acknowledgement by a notary, notice, acknowledgment, and agent’s duties do not apply to a power of attorney which exclusively provides for health care decision making or mental health care decision making.
Forms of Powers of Attorney
A general power of attorney grants broad authorizations to the agent. The agent may be able to make decisions regarding broad categories such as medical, legal, financial, or business decisions. Such broad powers are limited by the “hot powers” which must be expressly authorized in the power of attorney.
A special power of attorney allows the principal to be more specific as to what authority is being granted to the agent(s). For example, a special power of attorney may authorize the principal’s spouse to make medical decisions, and then the principal may authorize the principal’s business partner to make business decisions. Like general powers, special powers are limited by the “hot powers” which must be expressly authorized in the power of attorney.
Pennsylvania's Power of Attorney Law
An agent that has accepted appointment has a:
- Duty to 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.
- Duty to act in good faith. The Pennsylvania Estate and Fiduciary Code defines good faith as honest in fact.
- Duty to act within scope of authority granted. A principal may grant to an agent a narrowly tailored power of attorney or a very broad power of attorney. A power of attorney which grants to an agent authority to do all acts that a principal is authorized to perform, the broad authority is subject to the “hot powers” which must be expressly granted.
- Duty of Loyalty. The agent must act loyally for the principal’s benefit. The agent must keep the agent’s funds separate from the principal’s funds unless: (1) the funds were not kept separate as of the date of the execution of the power of attorney; or (2) the principal commingles the funds after the date of the execution of the power of attorney and the agent is the principal’s spouse.
- Duty not to create a conflict of interest that impairs the agent’s ability to act impartially in the principal’s best interest.
- Duty to Act with Care, Competence, and Diligence. An agent that acts with care, competence and diligence for the best interest of the principal shall not be liable solely because the agent also benefits from the act or has an individual or conflicting interest in relation to the property or affairs of the principal. Absent a breach of duty to the principal, an agent shall not be liable if the value of the principal’s property declines. In determining whether the agent has acted with care, competence and diligence under the circumstance if the principal selected the agent because the agent possessed or represented having special skill or expertise, the special skill or expertise must be considered. An agent that exercises authority to delegate to another person the authority granted by the principal or that engages another person on behalf of the principal shall not be liable for an act, error of judgment or default of that person if the agent exercises care, competence and diligence in selecting and monitoring the person.
- Duty to keep a record of all receipts, disbursements and transactions made on behalf of the principal.
- Duty to cooperate with a person who has authority to make health care decisions for the principal to carry out the principal’s reasonable expectations and, otherwise, act in the principal’s best interest.
- Duty to Attempt to Preserve the Principal’s Estate Plan. In determining whether preserving the plan is consistent with the principal’s best interest the following factors are relevant: (1) The value and nature of the principal’s property; (2) The principal’s foreseeable obligations and need for maintenance; (3) Minimization of taxes, including income, estate, inheritance, generation-skipping transfer and gift taxes; and (4) Eligibility for a benefit, program or assistance under a statute or regulation. 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.
An agent under a power of attorney may do the following on behalf of the principal or with the principal’s property only if the power of attorney expressly grants the agent the authority and exercise of the authority is not otherwise prohibited:
- Create, Amend, Revoke, or Terminate an Inter Vivos Trust (Other than as permitted by 20 Pa.C.S.A. § 5602(a)(2), (3) and (7), relating to form of power of attorney)
- Make a Gift. Unless otherwise provided, the authority to make gifts authorizes the agent only to: (a) Make outright to or for the benefit of a person, a gift of the principal’s property, including by the exercise of a presently exercisable general power of appointment held by the principal. A “gift for the benefit of a person” includes a gift to trust, an account under the Pennsylvania Uniform Transfer to Minors Act and a tuition savings account or prepaid tuition plan; (b) Consent to the splitting of a gift made by the principal’s spouse in an amount per done not to exceed the aggregate annual gift tax exclusions for both spouses. An agent may make a gift of the principal’s property only as the agent determines is consistent with the principal’s objectives, if known and, otherwise, as the agent determines is consistent with the principal’s best interest. In making this determination the agent should consider the same factors that are relevant in deciding whether to preserve the principal’s estate plan, as well as the principal’s personal history of making or joining in making gifts.
- Create or Change Rights of Survivorship
- Create or Change a Beneficiary Designation
- Delegate Authority Granted under the Power of Attorney
- Waive the Principal’s Right to be a Beneficiary of a Joint and Survivor Annuity, including Retirement Plans
- Exercise Fiduciary Powers the Principal has the Authority to Delegate
- Disclaim Property, including a power of appointment. Unless otherwise provided, the grant of the power to disclaim any interest in property or a grant of general authority with disclaimers authorizes the agent to release or disclaim any interest in property on behalf of the principal. An agent may make a disclaimer as the agent determines is consistent with the principal’s objectives, if known and, otherwise, as the agent determines is consistent with the principal’s best interest. In making this determination the agent should consider the same factors that are relevant in deciding whether to make a gift. The power to disclaim an interest includes the right to take as an appointee under an unexercised power of appointment or under a discretionary power to distribute income or principal. A disclaimer on behalf of the principal may be made by the principal’s agent if, in each case, the court having original jurisdiction of the estate authorizes the disclaimer after finding that it is advisable and will not materially prejudice the rights of the principal or the principal’s creditors.
Specification of Powers
Pennsylvania sets out statutory powers that can be incorporated by reference into a power of attorney. At any time, a principal may modify the authority that is incorporated by reference. These specific powers are subject to and limited by the “hot powers” which must be expressly granted. The specific powers are defined in more detail in 20 Pa.C.S.A. § 5603. In general, the agent may exercise all powers with respect to the specific power that the principal could if present.
The agent has the power to:
- Create a trust. The agent may execute a deed of trust, designating one or more persons (including the agent) as original or successor trustees and transfer to the trust any or all property owned by the principal as the agent may decide.
- Make additions to an existing trust. The agent may add any of the property owned by the principal to any trust in existence when the power was created.
- Claim an elective share. The agent may elect to take against the will and conveyances of the principal’s deceased spouse, disclaim any interest in property which the principal is required to disclaim as a result of such election, retain any property which the principal has the right to elect to retain, file petitions pertaining to the election, and take all other actions which the agent deems appropriate in order to effectuate the election. Provided, however, that the election shall be made only upon the approval of the court having jurisdiction of the principal’s estate in the case of a principal who is an incapacitated person, or upon the approval of the court having jurisdiction of the deceased spouse’s estate in the case of a principal who is not an incapacitated person.
- Renounce or resign any fiduciary position. The term fiduciary shall be deemed to include, without limitation, an executor, administrator, trustee, guardian, agent or officer or director of a corporation.
- Demand, withdraw and receive the income or corpus of a trust over which the principal has the power to make withdrawals, or a trustee has the discretionary power to make distributions to or on behalf of the principal.
- Engage in real property transactions.
- Engage in tangible personal property transactions.
- Engage in tangible stock, bond and other securities transactions.
- Engage in commodity and option transactions.
- Borrow money.
- Enter safe deposit boxes.
- Engage in insurance and annuity transactions; not including the power to create or change a beneficiary designation, which must be expressly authorized as set forth in 20 Pa.C.S.A. § 5601.4 (relating to hot powers).
- Engage in retirement plan transactions; not including the power to create or change a beneficiary designation, which must be expressly authorized as set forth in 20 Pa.C.S.A. § 5601.4 (relating to hot powers).
- Handle interests in estates and trusts.
- Pursue claims and litigation.
- Receive government benefits.
- Pursue tax matters.
- Operate a business or entity.
- Provide for personal and family maintenance. Authority with respect to personal and family maintenance is in addition to and not limited by authority that an agent may or may not have with respect to gifts as set forth in 20 Pa.C.S.A. § 5601.4 (relating to hot powers).
Acceptance and Reliance upon Power of Attorney
A person who in good faith accepts a power of attorney without actual knowledge that a signature or mark of any of the following are not genuine may, without liability, rely upon the genuineness of the signature or mark of: (1) the principal; (2) a person who signed the power of attorney on behalf of the principal at the principal’s direction; (3) a witness; or (4) a notary public or other person authorized by law to take acknowledgments.
A person who in good faith accepts a power of attorney without actual knowledge of any of the following may, without liability, rely upon the power of attorney as if the power of attorney and agent’s authority were genuine, valid and still in effect and the agent had not exceeded and had property exercised the authority that: (1) the power of attorney is void, invalid or terminated; (2) the purported agent’s authority is void, invalid or terminated; (3) the agent is exceeding or improperly exercising the agent’s authority.
Request for Information
A person who is asked to accept a power of attorney may request and, without liability rely upon without further investigation: (1) an agent’s certification under penalty of perjury of any factual matter concerning the principal, agent or power of attorney or an affidavit; (2) an English translation of the power of attorney, if the power of attorney contains, in whole or in part, language other than English; or (3) an opinion of counsel relating to whether the agent is acting within the scope of the authority granted by the power of attorney, if the person making the request provides in a writing or other record the reason for the request.
For information on Powers of Attorney Litigation, see related article: Power of Attorney Litigation
Author: Frances A. McCormick
Originally published in October 2019
Copyright © 2019 Knox McLaughlin Gornall & Sennett, P.C.