New Power of Attorney Law in Pennsylvania
Pennsylvania has made broad changes to the law governing powers of attorney. The bill in which these changes were proposed, H.B. 1429, was unanimously passed by the Pennsylvania House and Senate and signed by the Governor on July 2, becoming Act 95 of 2014.
Most of the new law’s provisions are effective January 1, 2015. However, there are certain key sections that are effective immediately, including the section requiring third parties to honor POAs, requiring that POAs made in other states will nevertheless be recognized in Pennsylvania, and implementing the legislative intent of overturning the case of Vine v. Commonwealth State Employees’ Retirement Board.
We have until the end of the year to incorporate the new, longer notice language that appears on the first page of the POA, and to figure out how to let the client elect to grant the “hot powers.” In addition, there is a new provision related to making limited gifts that probably needs to be spelled out to meet the new law’s intent.
Third Party Reliance
One of the biggest practical problems faced by agents trying to use their authority under POAs is the refusal by a third party, such as a bank, brokerage house, or other entity, to accept the POA.
This problem was exacerbated by the PA Supreme Court’s holding in the case ofVine v. Commonwealth State Employees’ Retirement Board, 9 A.3d 1150 (Pa. 2010). That case involved the statutory immunity afforded to third parties and held, much to the consternation of the legal bar, that a third party that relies on a power of attorney is not immune from liability if the power of attorney is not valid. The Vine decision called into question third parties’ acceptance of powers of attorney.
The new law legislatively reverses the court’s holding in Vine. Broad protection is given to banks and other third parties who in good faith accept and rely on a POA.
In addition to reversing Vine, the new law provides that, if a third party is asked to accept a POA, that third party has the right to request additional information and documentation, such as an agent’s certification of facts, a translation of the document if it is not in English, and an opinion of counsel that the agent is acting within the scope of the authority granted. Reversing Vine was good news. But I’m not so sure being asked as an attorney to opine that an agent is acting within the scope of granted authority is such good news. Now we have to be guarantors for the agent?
The new law’s provisions regarding effectiveness, recognition, or enforcement of a power of attorney document are effective immediately, that is as of July 2, 2014.
Under current law, powers of attorney just had to be signed and dated by the principal. Only powers of attorney signed by mark or signed by someone at the direction of the principal required two witnesses. Beginning January 1, 2015, all POAs must be witnessed by two individuals neither of whom may be the agent, the individual who signed the POA on behalf of and at the direction of the principal, or the notary before whom the POA is acknowledged. Also, beginning January 1, 2015, the signature or mark of the principal must be acknowledged before a notary public. This requirement for notarization does not apply to a POA which exclusively provides for making health care decisions or mental health care decisions.
There is new language required for the Notice to the principal that must appear in ALL CAPITALS at the very beginning of the POA. The new language warns that the POA may grant the agent the power to give away the principal’s property or to change how the property is distributed at the principal’s death.
Also, the principal is advised to seek the advice of an attorney at law before signing the POA. [I didn’t think this was new?]
The acknowledgment form that the agent must sign has been changed to say 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. As if signing such a statement will make it true, the new acknowledgment states that the agent must act in good faith and within the scope of authority granted in the POA.
An agent is prohibited from certain actions unless the authority is expressly granted in the POA. These “hot” powers include the authority to do the following:
- Create, amend, revoke or terminate an inter vivos trust unless permitted under the statute language that permits the agent “To create a trust for my benefit” or to “To make additions to an existing trust for my benefit”
- Make a gift.
- 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 a survivor benefit under a retirement plan.
- Exercise fiduciary powers that the principal has authority to delegate.
- Disclaim property, including a power of appointment.
Under the new law an agent may make limited gifts only under certain circumstances. It is specifically stated in the statute that gifts must be in the principal’s best interest which may include “eligibility for a benefit, program or assistance under a statute or regulation.” Limited gifts can be doubled if the principal’s spouse will consent to gift splitting. Limited gifts can also be made to a trust, a UTMA account or a 529 plan, and although they don’t have to qualify for the gift tax annual exclusion, the permissible amount of limited gifts is determined by reference to that exclusion amount.