Changes to Pennsylvania’s Power of Attorney Law
This Elder Care / Senior Care article summarizes the recent changes made to Powers of Attorney in Pennsylvania, specifically focusing on Pennsylvania’s House Bill 1429, which was signed by Governor Corbett on July 2, 2014, and became Act 95 of 2014. This law contains provisions which include changes to the form and acceptance of powers of attorney in Pennsylvania. Some of those provisions – namely those relating to the acceptance of powers of attorney by third parties and third party liability – were effective immediately upon the Bill’s signature into law. Other provisions of the Act become effective beginning January 1, 2015. This article will detail the changes made by the new law, and how they effect existing powers of attorney as well as powers of attorney drafted after the start of the new year.
Execution of Powers of Attorney
Previously, there was no blanket requirement that a power of attorney be witnessed or notarized. Under the old statute, powers of attorney were only required to be witnessed in the circumstance where the power of attorney was executed by the principal by mark or by another individual at the direction of the principal. Notarization was only required when the power of attorney was to be recorded. Under Pennsylvania’s new power of attorney law, effective January 1, 2015, all powers of attorney executed after that date must be notarized and signed by two witnesses. The agent cannot be the notary, and the witnesses cannot be the notary or the agent. Some attorneys, like this office, already regularly have powers of attorney executed containing these formalities as part of their standard practice. However, powers of attorney executed prior to January 1, 2015, are and will remain valid without witnesses and without notarization.
Notice and Agent Acknowledgement
Under the previous law governing the form and execution of powers of attorney, all powers of attorney were required to contain a “Notice” provision at the front; the terms of the Notice provision were dictated by statute. Act 95 changes the form of the Notice provision to contain two new statements. Those statements generally pertain to the agent’s duty to act in accordance with the principal’s reasonable expectations and in the principal’s best interest; and put the principal on notice as to the broad powers a power of attorney may convey to an agent. The “Agent Acknowledgement” (a signed statement by the agent acknowledging his or her duties under the power of attorney) was also required under the previous power of attorney statute, and Act 95 makes parallel changes to the Agent Acknowledgement provisions. The Act now requires the agent to acknowledge that he or she will act in accordance with the principal’s reasonable expectations and bestinterest, in good faith, and only within the scope of the powers granted by the principal in the power of attorney.
These changes, like the changes to the execution, are also effective January 1, 2015, and pertain only to power of attorney documents executed on or after that date. All previously executed powers of attorney that were validly executed under the laws in effect at the time of their execution will remain effective.
Agent’s Duties
The above-mentioned changes deal with the form and execution of the power of attorney documents. Act 95 also made changes to the statutory provisions regarding the agent’s duties and powers, as well as the duties and liability of third parties as to the acceptance of powers of attorney. The statute requires that at a minimum, an agent has the duty to act in accordance with the principal’s reasonable expectations and in the principal’s best interest, act in good faith, and act only within the scope of powers granted to the agent under the power of attorney. These duties are enumerated in the statue (20 Pa. C.S. 5601.3), and are set out verbatim in the new agent acknowledgement provisions. These duties are a mandatory minimum and cannot be waived by the principal in the power of attorney.
The Act also sets limits on the agent’s liability as long as the agent acts in good faith. The statute permits the possibility that the agent may benefit from a transaction entered into on behalf of the principal, and does not automatically impose liability as long as the agent acts with care, competence and diligence in the best interest of the principal.
Finally, with respect to an agent’s duties, the Act places a clear limitation on those who have standing to compel an accounting of an agent’s actions under the power of attorney. Effective January 1, 2015, the agent is not required to provide an accounting of his or her actions as agent unless a court so orders, or unless requested by the principal, a guardian, conservator, other fiduciary acting for the principal, governmental agency with the authority to protect the welfare of the principal, or personal representative of the principal’s estate upon the principal’s death. Note that this new language does not include a spouse, parent, descendant, presumptive heir, or beneficiary.
Powers of an Agent
The new statutory provisions specify which powers must be enumerated specifically and expressly in the power of attorney in order to be granted to the agent. These powers include the power to create, amend, or terminate an inter vivos trust; make a gift; change, create, or waive rights of survivorship; delegate the agent’s authority; and disclaim property (20 Pa. C.S. 5601.4). The gifting powers of an agent contained in the statute have been modified; the agent may make limited gifts under the statute which are not restricted, subject to the agent’s duties set forth above.
The new statute also limits an agent’s ability to do any estate planning on behalf of the principal. Section 5601.4(b) prohibits the agent from exercising his or her powers under the power of attorney for the agent’s benefit unless the agent is a lineal ascendant (parent, grandparent, etc.), lineal descendant (child, grandchild, etc.) or spouse of the principal and the power of attorney contains express language that permits the agent to exercise powers for his or her own benefit.
Third Party Liability
One of the wheels that set the passage of this new law into motion was the 2010 Pennsylvania Supreme Court decision in the case of Vine v. Comm. of Pa. State Employees’ Retirement Board (607 Pa. 648, 9 A.3d 1150 (2010)). Essentially, in this case, the Court held a third party (the State Employees’ Retirement Board) liable for relying on and permitting an agent to act under a power of attorney that on its face was valid but which later was determined to be void due to the principal’s incapacity at the time of execution. Basically, even though the power of attorney was properly executed, it was not revoked, and the third party acted in good faith in accepting the power of attorney and permitting the agent to act, a Court still held that third party responsible for the actions of the agent taken under the power of attorney because the Court determined that the principal lacked the capacity to execute the document at the time it was signed and therefore the document was invalid, even though there would be no way for the third party to tell on the face of the document that the document was void.
This decision has made many third parties reluctant to accept powers of attorney presented to them for obvious reasons, and it has been a real practical challenge to have agents act under valid, existing, and properly executed powers of attorney. Some third party agencies began to require that a principal execute a proprietary form, and refuse to accept powers of attorney that do not conform to such third party’s specific guidelines despite the fact that the prior power of attorney statute prohibits such acts.
The new power of attorney law contains provisions that were effective immediately upon the passage of the law that are a clear reversal of the Vine Court’s holding. The new statute specifically provides immunity to third parties for good faith reliance upon a power of attorney even if the power of attorney is later found to be void, invalid, or revoked, as long as the third party does not actually know that the power of attorney is in some way void, ineffective, or revoked. The new statute also provides some tools for third parties to use in determining whether to accept a power of attorney. A third party may now, prior to acceptance of a power of attorney, request an agent’s certification under penalty of perjury, an English translation of the document (if it is in another language), or an attorney’s opinion as to whether the agent is acting within the scope of authority granted by the document. The statute places some timelines on these requests – the third party has 7 business days to decide whether the power of attorney is acceptable or whether they would like to request one of the permissible forms of additional information. If the third party decides to request additional information, they then have 5 business days after the receipt of such information to decide whether they will accept the power of attorney or whether they will make an additional request; although the third party is required to have a substantial basis for making such an additional request.
The new statue also explicitly states that a third party cannot require different or additional forms of power of attorney (20 Pa. C.S. 5608(3)). The statue sets forth acceptable reasons for refusal to accept a power of attorney; but if a third party refuses to accept a power of attorney and does not have a proper basis to do so under the statute, the third party may be subject to civil liability or a court order mandating the acceptance of the power of attorney. While the new statutory provisions seem to pull away some of the barriers to third parties’ acceptance of powers of attorney, it remains to be seen as to whether this holds true in practice.
Conclusion
Act 95 of 2014 made some important changes to the Pennsylvania law governing the form, execution, scope, and acceptance of powers of attorney. Some of those changes were effective immediately, and some did not come into effect until January 1, 2015. Although changes regarding the execution of powers of attorney are not effective as to powers of attorney executed prior to that date, it is a prudent idea to have your existing powers of attorney reviewed by your attorney to ensure that they conform to the law and that they are effective in granting all of the necessary and appropriate powers to your agent. An update may be advisable, as the new statute changes the scope of an agent’s powers that may be given by reference and those powers that must be given explicitly. Without careful review, you may not discover that your power of attorney does not function in the manner necessary for your agent to act in your best interest until it is too late.
Written By:
James J. Ruggiero, Jr., Esq.
Ruggiero Law Offices, LLC
Paoli, Pennsylvania