Wednesday, October 23, 2013
Powers of Attorney (POAs) are a key tool in estate planning and Medicaid planning. A thoughtfully drafted POA can avoid the need for a guardianship, for example, and thus avoid delays, embarrassment and greater expense for a principal who later becomes incapacitated.
Unfortunately, POAs can also be a tool for misuse by agents who can't resist the temptation to help themselves, rather than their principals. For a number of years, states have been struggling to balance utility against risk.
In Pennsylvania, for example, prior to 1999, statutory law governing POAs permitted principals to grant agents the authority to make gifts. Civil case law interpreted such gift-giving authority, unless expressly limited, as permitting agents to make "self-gifts." Even if the agent's self-gifting put the principal in serious financial jeopardy, some prosecutors declined to prosecute. Following a series of troubling reports and cases, in 1999 the Pennsylvania legislature amended state law to declare that all agents appointed under POAs were subject to specific fiduciary duties. The change also imposed a statutory presumption of limited gift authority (tied to annual federal gift tax exclusions) unless the principal expressly granted the agent "unlimited" gift authority.
Concern about misuse of powers of attorney has grown on a nationwide basis,especially after high profile cases such as that of New York heiress Brooke Astor, where her son used a POA to sell off artwork and other valuable property, while reportedly keeping his mother isolated from friends.
Even before the Brooke Astor case came to light, academics, legislators, judges and practitioners worked together in the Uniform Law Commission to propose amendments to statutory authority governing POAs, resulting in the Uniform Power of Attorney Act of 2006 (UPOAA), which superseded prior uniform law proposals. The UPOAA attempts to rebalance risk and power, or as the Commission summarizes:
"The UPOAA seeks to preserve the durable power of attorney as a low-cost, flexible, and private form of surrogate decision making while deterring use of the power of attorney as a tool for financial abuse of incapacitated individuals. It contains provisions that encourage acceptance of powers of attorney by third persons, safeguard incapacitated principals, and provide clearer guidelines for agents."
Adoption of the UPOAA has been fairly slow. As of today, only 13 states plus the U.S. Virgin Islands, have enacted the UPOAA.
In 2013, legislatures in Mississippi (H.B. 468) and Pennsylvania (S.B. 620) are considering adoption. In Pennsylvania, the need for clarification has been heightened by reaction to the Pennsylvania Supreme Court's opinion in Vine v. Commonwealth, 9 A.3d 1150 (Pa. 2010), where a POA was signed by a hospitalized principal, and used by the husband/agent to make self-benefiting changes to his wife's retirement accounts, while his wife was incapacitated.
Court practice and enforcement policies on POAs, guardianships and elder abuse are also under consideration by the Pennsylvania Elder Law Task Force (2013), chaired by Justice Debra Todd of the Pennsylvania Supreme Court.
In Pennsylvania, views on what changes to POA laws are necessary differ in small or large ways among bankers, estate attorneys, elder law attorneys and district attorneys, just to name a few of the interested parties.
The scholarship of law professors has been important to the debate over proper use of POAs, including two articles by Valparaiso Law Professor Linda Whitton, "Durable Powers of Attorney as Alternatives to Guardianship: Lessons We Have Learned" and "The New Power of Attorney Act: Balancing Protection of the Principal, the Agent and Third-Persons."
By the way, when I first drafted this post, I titled it "The Problem(s) with Powers of Attorney." Overnight, I rethought that title, because many POAs are never abused and agents frequently go above and beyond in performing uncompensated services, including financial management, for aging principals. I therefore retitled the post. What law reform movements are attempting to do is reduce the potential for abuse. Human nature being what it is, there is probably no law that can prevent abuse by a wrongly motivated agent. Who to trust with powers granted under a POA will always be an important matter for families to consider and discuss with their legal and financial advisors.