Source: http://www.mayberrylawfirm.com/Landing-Page/poa/handbook
Timestamp: 2019-04-22 07:12:42+00:00

Document:
People should not only plan for their death but also for the chance of incapacity. With the increase in life expectancy, the number of persons suffering from disability that triggers incapacity has drastically increased. Thus, it is extremely important to plan for the possibility of a temporary or permanent disability.
Definition. A power of attorney is an authorization for one person to act on someone else’s behalf in a legal or business matter. The person authorized to act is the “agent” or sometimes called “attorney-in-fact” and the person granting the authorization is the “principal.” Because many people confuse attorney-in-fact with attorney-at-law, the Uniform Law Commissioners recommend using the word “agent” instead of “attorney-in-fact.” This is a fiduciary relationship where the agent has to act in the best interest of the principal and make decisions that are consistent with decisions that the principal made for him/herself. The agent may be held liable for a breach of any fiduciary duty to the principal.
Common Law. Under the common law, a power of attorney becomes ineffective upon the principal’s incapacity. This power was not a useful tool to manage affairs of an incapacitated principal. In 1954, states began to change this common law rule by modifying their statute to transform the power of attorney into a durable power of attorney. However, the power needs to expressly elect its durability. Usually, the following language is used: “this power of attorney shall not terminate on disability of the principal.” The Commonwealth of Virginia became the first state to provide for the continuation of the agency relationship upon the incapacity of the principal. The adoption of the durable power of attorney became widespread with the promulgation of the Uniform Probate Code of 1969 and the Uniform Durable Power of Attorney Act of 1979.
Other Legal Documents. There are several estate planning documents that deal with incapacity: powers of attorney, revocable trusts, health care powers, living wills, and HIPAA releases. While health care powers, living wills and HIPAA releases are limited to health issues, powers of attorney and revocable trusts focus on arranging the management of the property for an individual who is temporary or permanently disabled. A living will is a document where an individual provides instructions regarding medical treatments in a situation of a prolonged coma or end of life. In a healthcare power, the individual names an agent to advocate on his behalf with the doctors and medical institutions. Sometimes the healthcare power includes a living will. An HIPPA release gives access to medical information to the persons listed on the release.
Our discussion will concentrate on the power of attorney. Please note that a revocable trust is a more complete document than a power of attorney, but it is always recommended that the person who creates a revocable trust executes a power of attorney for the assets that may not be titled under the trust.
Useful Planning Tool. This is the single most useful planning tool to address the possibility of future incapacity. A power of attorney is a financial power where the agent will be able to handle any financial affairs on behalf of the principal.
The American population is aging; 75 million baby boomers are starting to retire. They will have diverse needs and some will require long term care. Their preference in aging places will vary and will depend on their level of income. A power of attorney is a simple document that will help these seniors in case of a temporary or permanent disability. It will also allow them to delegate a portion of the management of their personal affairs. Elderly will eventually face a situation where they will need assistance with the management of their affairs.
Avoid Chaos. Without a power of attorney, all of the assets of the disabled person are frozen. The disabled person’s affairs will be in complete chaos. Who will pay the expenses? Who will have access to the safe deposit box for key information or documents? Who will manage the investments in a volatile market where decisions may be required immediately? Who will sell the real estate property?
If an individual has not executed a power of attorney and becomes incapacitated, a guardian for the person and a conservator for the property will have to be appointed by the Court. The Court will appoint a Guardian ad litem to inspect and report on the necessity of a guardianship and conservatorship and whether the proposed guardian and conservator is an adequate person to serve. Such a proceeding will cost several thousand dollars. If family members fight over who should serve, the proceeding cost would be a minimum of several tens of thousands of dollars. In addition, with a family feud, the legal proceeding may last for several years.
As mentioned earlier, a Revocable Trust cannot replace the benefits of a power of attorney. A property can be outside of the Revocable Trust because it was never titled into the Trust or because it was acquired later by gift. Properties titled jointly allow the joint owner to manage the assets of the joint account but the joint owner is not allowed to close the account or sell the property by him/herself. In addition, the joint owner cannot open a joint account without the consent of the other party. Therefore, no other documents or systems can completely replace a power of attorney.
States Statutes. This concept was incorporated into the Uniform Probate Code of 1969 and in the Uniform Durable Power of Attorney Act of 1979 to offer an inexpensive method for situations that did not justify complex pre-incapacity planning with a trust or post-incapacity property management with a guardianship. Most of these statutes are brief and rely heavily on the common law of agency for the construction and interpretation of the durable power of attorney. After more than three decades, states have incorporated numerous non-uniform provisions that while helpful, cause great divergence and confusion between states. The topics of divergences include: (1) the authority of multiple agents; (2) the authority of a late appointed fiduciary or guardian; (3) the impact of dissolution or annulment of the principal’s marriage to the agent; (4) activation of contingent powers; (5) the authority to make gifts; and (6) standards for agent conduct and liability.
In addition, certain entities, such as banks, brokerage houses, and insurance companies have arbitrarily refused powers of attorney, requiring the principal to execute the entity’s own power of attorney form.
Uniform Law Commission. A national survey was conducted by the Joint Editorial Board for Uniform Trust and Estate Acts (JEB). Forty-four jurisdictions were represented in the 371 survey returns. It demonstrated a consensus of opinion in excess of seventy percent that a power of attorney state should: (1) provide for confirmation that contingent powers are activated; (2) revoke a spouse-agent’s authority upon the dissolution or annulment of the marriage to the principal; (3) include a portability provision; (4) require gift making authority to be expressly stated in the grant of authority; (5) provide a default standard for fiduciary duties; (6) permit the principal to alter the default fiduciary standard; (7) require notice by an agent when the agent is no longer willing or able to act; (8) include safeguards against abuse by the agent; (9) include remedies and sanctions for abuse by the agent; (10) protect the reliance of other persons on a power of attorney; and (11) include remedies and sanctions for refusal of other persons to honor a power of attorney.
Uniform Power of Attorney Act. The Uniform Law Commission has drafted a Uniform Power of Attorney Act in 2006. The states of Colorado, Idaho, and New Mexico have already adopted it. The Act was introduced to the states of Illinois, Indiana, Maine, Maryland, Minnesota, Montana, Nevada, Oregon, and Virginia.
Of course, each state will modify some provisions of the Act, but it will clarify and modernize state laws. The Act preserves the effectiveness of durable powers as a low-cost, flexible, and private form of surrogate decision-making. It provides mandatory provisions that provide safeguards for the protection of the principal, the agent, and persons who are asked to rely on the agent’s authority. It modernizes the various areas of authority that can be granted to an agent and requires express language authorization by the principal where certain authority could dissipate the principal’s property or alter the principal’s estate plan.
It provides step by step prompts for designation of agents, successor agents, and the grant of authority through an optional statutory form. It offers clearer guidelines for the agent, who is often a trusted family member. It recognizes that an agent who acts with care, competence, and diligence for the best interest of the principal is not liable solely because he or she also benefits from the act or has conflicting interests. It permits a principal to include in the power of attorney an exoneration provision for the benefit of the agent. It provides ways for the agent to give notice of resignation if the principal is incapacitated.
The Act consists of 4 articles. The first two state basic substance. The third contains an optional statutory form and the last article consists of miscellaneous provisions dealing with general application of the Act and a repeal of certain prior acts.
The Uniform Power of Attorney Act will be located in the Virginia Code Title 26 as a new additional Chapter 7. It will repeal the Va. Code §§ 11-9.1 through 11-9.7 and 37.2-1018 relating to powers of attorney.
Comparison with Maryland and D.C. The state of Maryland is also considering adopting the Unified Power of Attorney Act. The current provisions for powers of attorney are located under Title 15 of the Maryland Annotated Code of 1957. This title deals with general fiduciary powers, there is no article specific to powers of attorney. The District of Columbia has its own statutory form under D.C. Code Ann. § 21-2101. In this statutory form, the principal needs to initial each power listed. It protects third parties who rely on the power of attorney with the following language: “I agree that any third party who receives a copy of this document may act under it. Revocation of the power of attorney is not effective to a third party until the third party learns of the revocation. I agree to indemnify the third party for any claims that arise against the third party because of reliance of this power of attorney.” This statutory form set the standard of liability of the agent and provides some protection for the third party’s reliance and liability. However, D.C. Code Ann. § 21-2102 et seq. only list the powers that the agent may have. Some of the concerns raised in the survey for implementing a new power of attorney act are not answered in this statute. The timing of the activation of the power, the revocation of the power upon dissolution or annulment of the marriage, or portability provisions are not answered.
Drafting requirements. The only important requirement is that the principal’s signature needs to be notarized for recordation purposes. In addition, the acknowledged signature by a notary carries the statutory presumption of validity. Now-a-days, for privacy purposes, the social security number of the principal should not be mentioned on the power of attorney.
Some states require that the power of attorney be executed in the same manner as a will or a deed. To ensure its portability, the power of attorney should be witnessed by two unrelated, disinterested witnesses and the principal’s signature should be notarized.
In order to satisfy recordation requirement, the power should be notarized, each individual’s surname should be underscored or capitalized, each page of the power should be numbered, and the first page of the power should show the name of the draft person.
Under the Act the paper copies and electronically transmitted copies have the same force and effect as the original.
The Act encourages powers of attorney portability. A power of attorney created according to the laws of the state where it is created will be valid in Virginia.
Federal Law Supersedes Power of Attorney. Certain federal government agencies do not recognize state powers of attorney and require the execution of their own form. The Internal Revenue Service has its own Form 2848 “Power of Attorney and Declaration of Representative” where not everybody can be a representative of the principal. The IRS accepts attorneys, CPAs, Enrolled Agents, Officers, and family members. The IRS will assign a CAF number to the representative. Social Security Administration has a Representative Payee Program. The individual will have to make an appointment with the Social Security Administration that will investigate on the necessity of naming a representative payee. The Representative Payee will have to file annual accounting report. Treasury Direct has its own form called Durable Power of Attorney for Securities and Savings Bond Transactions.
Power of Attorney Abuses. Powers of attorney confer a great deal of authority without regular oversight or clear standards for agent conduct. Advocates for older people often call the power of attorney a “license to steal.” There is no national data on the incidence of power of attorney abuse, but adult protective services and criminal justice professionals report an explosion of financial exploitation cases of this type. The most recent analysis of compiled state adult protection services data was collected in 2003 and indicated that 20.8 percent of the reports made to state adult protective services about persons age 60 or older concerned financial exploitation. Power of attorney abuse takes many forms. An agent may spend the principal’s money for self-dealing purposes. We often see the agent buying a car for him/herself instead of paying the principal’s nursing home care. The agent may exceed the intended scope of authority by making gifts when the power has not been granted.
Unfortunately, the abuses are rarely detected if the principal has become incapacitated because there is no monitoring of the agent’s actions by a third party unless the principal has authorized such monitoring in the power of attorney. Even if the power of attorney abuse is detected, there are several reasons why it can be difficult for the civil justice system to hold the agent liable and for the criminal justice system to hold the agent accountable. The lack of statutory clarity about agent duties poses challenges to civil litigation and criminal prosecution. The agent may have dissipated the principal’s assets making it impossible to pursue an often costly civil litigation against the agent. The victim of abuse by a power of attorney is aged sixty or older and may be able to get free civil legal help from a program that is funded through the Older Americans Act. Law enforcement officers may not understand that power of attorney abuse is a crime and fail to investigate allegations. On the other hand, prosecutors may not receive case referrals from adult protective services agencies, banks, or law enforcement agencies. Finally, there is a lack of resources to prosecute these cases which can be extremely challenging and labor intensive. A civil lawyer can help the principal revoke the power of attorney. The attorney can ask the civil court to order that the agent provide an accounting of how the principal’s money has been spent and may ask for rescission, to un-do transactions conducted by the agent. In addition, the attorney may sue the agent for conversion, for stealing the principal’s money or assets. Finally, the attorney may petition the court to declare the principal to be incapacitated and appoint a guardian and/or conservator. With a criminal prosecution, the agent can be accused of exploitation, embezzlement, forgery, fraud, larceny, money laundering, and theft.
The Uniform Law Commissioners have proposed the following key provisions in the Uniform Power of Attorney Act that benefit and protect people who execute powers of attorney: (1) a clear statement of the agent’s duties including the agent’s responsibility to act in good faith, within the scope of authority granted, and according to the principal’s known expectations or best interest, such as preserving estate plans and cooperating with health care proxies;(2) expressed authorization for exercising “hot powers”; (3) a provision that a third party may refuse to honor a power of attorney when the third party reports suspected abuse to an adult protective service agency or knows that someone else has made a report; and (4) liability for malfeasant of agents for damages, attorney’s fees, and cost. We will know the result of these provisions when enough states adopt the Uniform Power of Attorney Act for several years.
Principal Capacity. The principal needs to have capacity at the execution of the power of attorney. The American Bar Association has published several handbooks to help professionals assess capacity including Assessing of Older Adults with Diminished Capacity: a Handbook for Lawyers. The proposed Virginia Power of Attorney Act uses the term “incapacity” rather than “disability.” Therefore a disabled person can be capable and an incarcerated person does not lose his/her capacity. The power must be signed by the principal or in the principal’s conscious presence by another individual at the principal’s direction.
Selection of the Agent. The principal should select an individual who is good at finance, keeping records, trustworthy, close by, and who has time. One common mistake is to name the eldest child because he/she is the eldest. Another common mistake is to name all of the children as co-agents because the principal wants to treat them equally. It is recommended that the principal discuss his/her selection with the potential agents prior to the execution of the power of attorney.
Acceptance of the Agent. Virginia’s current statutory law has eliminated the delivery requirement of the power of attorney to the agent. The proposed Virginia Power of Attorney Act has no provision on this matter and will repeal the current statutory law. Therefore, there will be no delivery requirements by default. The agent is presumed to have accepted the duties by action or by a written statement. It is recommended to have a declaration of acceptation at the end of the power of attorney that the agent can sign upon acceptance of his/her duties.
Termination of Power of Attorney or Agent’s Authority. Under the proposed Virginia Power of Attorney Act, a power of attorney can be revoked by an express revocation statement in writing. A subsequently executed power of attorney will not automatically revoke the prior power. Finally, the terminating event is not effective as to an agent or other individual until they have actual knowledge of the revocation. A spouse-agent’s authority is terminated if an action is filed for divorce or annulment of the marriage or legal separation from the principal. This default rule can be overridden in the power of attorney at a later date, such as a final court order of divorce or legal separation.
If the agent wants to terminate his/her fiduciary relationship, he/she must give notice to the principal or, if the principal is incapacitated, to the individual listed under the Act by order of priority.
Compensation. The proposed Virginia Power of Attorney Act sets a default rule that an agent is entitled to reasonable compensation and to reimbursement of expenses reasonably incurred on behalf of the principal. The practitioner may want to add guidance on what is reasonable compensation.
Duties toward the Principal. The agent shall act loyally, in good faith, with care, competence, and diligence. The agent shall act for the best interest of the principal. The agent shall attempt to preserve the principal’s estate plan, to the extent actually known by the agent, if preserving the plan is consistent with the principal’s best interests based on all relevant factors. The agent shall cooperate with the health-care agent. The agent can delegate authority including investment powers but the agent’s duties under the Virginia Uniform Prudent Investor Act remains. The agent shall avoid creating a conflict of interest. Finally, the agent shall keep records. If the agent has special skills or expertise, this will be taken into consideration to determine whether the agent has acted with care under the circumstances. However, the power of attorney can include an exoneration provision unless the agent’s breach is committed dishonestly, with improper motive, or with reckless indifference to the purposes of the power of attorney or the best interest of the principal. As mentioned earlier, the agent can be subject to civil or criminal liability.
The proposed statutory form of power of attorney includes a section on important information for the agent regarding the agent’s duties, liability and the termination of agent’s authority.
Duties toward Third Party. The current statute and the proposed Virginia Power of Attorney Act allow a certain individual to request an accounting from the agent. In addition, certain individuals can petition the court to review the agent’s conduct and grant appropriate relief. This group includes family members, a beneficiary under the principal’s estate plan, a person that demonstrates sufficient interest in the principal’s welfare, and adult protective services.
The proposed Virginia Power of Attorney Act provides broad protections for a person, who in good faith accepts an acknowledged power of attorney. This is a change in Virginia’s common law. The Virginia Supreme Court has held, “one who deals with an agent does so at his own peril and has the duty of ascertaining the agent’s authority. If the agent exceeds his authority, the principal is not bound by the agent’s act.” Under the Act, the third party is not required to investigate whether the power of attorney or the agent’s authority is valid. In fact, the third party must either accept an acknowledge power of attorney or request a certification, translation, or an opinion of counsel within seven business days of presentment of the power of attorney. The third party will have to accept the power of attorney within five business days after receipt of the requested document and shall not require an additional or different form of power of attorney.
However, the third party may legitimately refuse to act in certain circumstances, called “safe harbor.” This includes if the third party believes in good faith that the power of attorney is not valid or that the agent does not have the authority to perform the act requested. Finally, the third party may report to the local adult protective services department or adult protective services hotline that he/she in good faith believes that the principal may be subject to physical or financial abuse, neglect, exploitation, or abandonment by the agent or a person acting for or with the agent.
Durable v. Nondurable. Under the Unified Power of Attorney Act, a significant change from prior statutes and the laws of virtually all states, a power of attorney is now presumed to be durable, unless it contains express language negating the durability feature. This is why the proposed Virginia Power of Attorney Act’s title is called “Uniform Power of Attorney” and does not contain the word “durable.” A power of attorney can be a durable or nondurable power. Even though the proposed Virginia Power of Attorney Act presumes that the power is durable, it is recommended to expressly state that the power survives the principal’s incapacity.
Immediate v. Springing. The proposed Virginia Power of Attorney Act sets the default rule that the power of attorney is immediately effective unless the principal chooses to create a “springing” power. This is consistent with current Virginia law.
The principal may expressly make the agent’s power begin on a specified date or make it depend on occurrence of a state contingency, such as the principal’s incapacity. If the springing power starts upon the incapacity of the principal, the power of attorney shall designate a specific person to make the determination of incapacity. Under the proposed Virginia Power of Attorney Act, the default rule is that the determination shall be made in writing by (i) the principal’s attending physician and a second physician or licensed clinical psychologist; or (ii) an attorney at law, a judge, or an appropriate governmental official. Under the proposed Virginia Power of Attorney act, a HIPAA release is automatically provided to all of the individuals listed to determine the capacity of the principal.
If the principal fears that an agent will act improperly now, the principal should anticipate that the principal would act improperly later, and select a more trustworthy agent. The practitioner can add language in the power of attorney creating a duty of accounting.
Limited v. General. For recordation purpose, some practitioners execute limited powers of attorney for sale of real estate in addition to a general power of attorney. The limited power of attorney can meet the recordation requirements including the name and address of the drafter on the first page of the power. The short form is easier and cheaper to record and the agent will not have to give the original general power of attorney for recordation. Finally, the recorded short form gives privacy to the principal since the information stated in the power is limited to the real estate property.
Single v. Co-Agents. The proposed Virginia Power of Attorney Act recognizes that the principal may name co-agents although the general trend is to name one agent at a time because of potential disagreement between agents and the possibility of agents taking inconsistent actions. The Act allows co-agents to act independently. The co-agent is not liable for the actions of another agent unless the agent participates in or conceals the breach of the fiduciary duty. If an agent with actual knowledge of a breach of a fiduciary duty by another agent fails to notify the principal or take reasonable action to safeguard the principal’s interest, he/she will be liable for foreseeable damages, which might have been avoided had the agent acted.
General Powers. The proposed Virginia Power of Attorney Act has statutory definitions for authority over various subject areas that may be incorporated by referring to §§ 26-72.04 through 26-72.17 of the Act. These articles define authority granted for real property; tangible personal property; stocks and bonds; commodities and options; banks and other financial institutions; operation of entity or business; insurance and annuities; estate, trusts, and other beneficial interests, claims and litigation, personal and family maintenance; benefits from governmental programs or civil or military service; retirement plans; and taxes. This incorporation by reference should shorten the length of powers of attorney and significantly improve its readability for non professionals.
Special Powers. In order to protect against power of attorney abuses, certain important powers have to be specifically granted such as power to: (1) create, amend, revoke, or terminate an inter vivos trust; (2) make a gift; (3) create or change rights of survivorship; (4) create or change a beneficiary designation; (5) delegate authority granted under the power of attorney; (6) waive the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan; or (7) exercise fiduciary powers that the principal has authority to delegate.
The special general powers granting the making of gifts authorizes only the agent to the annual federal gift exclusion under Internal Revenue Code 26 U.S.C. § 2503 (b), as amended. It also allows gifts that are consistent with the principal’s objectives or gifts the agent determines to be consistent with the principal’s best interest based on the following relevant factors: (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; (4) eligibility for a benefit, a program, or assistance under a statute or regulation; and (5) the principal’s personal history of making or joining in making gifts.
In addition, the principal may expressly grant the agent greater authority to make gifts. This authority should be carefully discussed with the client and drafted to meet the client’s needs and desires.
Statutory Form v. Tailored Forms. The proposed Virginia Power of Attorney Act offers a statutory form of power of attorney and an agent’s certification form. Samples of these forms are attached. The goal of these forms is to promote familiarity and thereby facilitate acceptance of powers of attorney. The statutory form is designed to be understood by lay persons while still providing attorneys a foundation upon which drafting options can be implemented. The proposed Virginia Power of Attorney Act has made changes from the Uniform Power of Attorney Act. It added an option that allows the appointment of co-agents and successor co-agents, including the ability to specify whether co-agents are to exercise their authority independently, by unanimous decision, or by majority decision. Also, the Act modifies the gifting power incorporated in a specific authority section of the statutory form. The authority to disclaim or refuse an interest in property, including a power of appointment, has been eliminated from the list of authorities which require a specific grant. In addition, the Act added a section that clarifies whether previous powers of attorney were revoked. Finally, it added the notary identification number line.
Suggested Additional Powers. A savvy practitioner may want to add a paragraph to provide instructions on the care of the principal in a situation of incapacity. Instructions on the preferences of having home care rather than care at an assisted living or nursing home or authorization to hire a care manager can be included.
Instructions on the care of pets could be added. This provision could vary from instructions regarding the expenses allowed for the care of the pets, to instructions regarding the end of life of the pets.
When you draft a power of attorney, you are presenting the principal. A waiver of conflict of interest could be added in the power of attorney in order for the drafter to assist the agents. In this situation, the practitioner should discuss confidentiality issues with the principal along with whether an authorization for the agent to access the principal’s estate planning should be given.
When the practitioner is the keeper of the original powers of attorney, an escrow letter should be executed. This letter is a durable special power of attorney appointing the attorney to act for the limited purpose of holding the durable general powers of attorney until releasing them as specifically instructed. The escrow letter can direct the lawyer to surrender the durable general power of attorney to the named agent if the lawyer receives instructions to do so from the client, the lawyer receives written opinions from two physicians that the client is mentally or physically incompetent or unable to handle ordinary business affairs, or when the lawyer obtains credible evidence that the client has disappeared. This escrow letter can be tailored to the client’s individual situation. It provides an additional layer of protection that a simple springing power of attorney may not provide. It also puts the agent in contact with the lawyer who can take the opportunity to explain what the agent’s duties and liabilities are.
 Prepared and presented by Richard Mayberry, Esquire on powers of attorney to attorneys, CPAs, and allied professionals.
 Va. Code § 11-9.1 (C).
 Va. Code § 11-9.1 (B).
 A sample form is attached.
 Kern v. Barksdale Furniture Corporation, 224 Va. 683 (1983).
 Without regard to whether the federal gift tax exclusion applies to the gift, or if the principal’s spouses agrees to consent to a split gift.

References: § 21
 § 21
 v. 
 v. 
 v. 
 v. 
 § 2503
 v. 
 § 11
 § 11
 v.