Clarity Brought to Durable Powers of Attorney

Adam S. Bernick, Esq. on 12/16/2014

It seems as if every decade or so, the Legislature makes changes to the statutes governing powers of attorney. It did so again with the passage of House Bill 1429, which Governor Corbett signed into law July 2014, thereby becoming Act 95 of 2014 ("Act 95").

Act 95 modifies many provisions of the statutes governing financial powers of attorney ("POA") in Pennsylvania. See, e.g., 20 Pa. C.S. § 5600 et. seq. Some of the changes are currently in effect, while others become effective on January 1, 2015. As such, prior to drafting a POA, consultation of the statutes governing POAs should occur prior to meeting with the prospective client and drafting the document.

Act 95 changes the formal requirements for the execution of POAs. They will now be required to be executed before two witnesses and a notary public. The changes to the statute clarify that neither the prospective agent nor the notary may serve as a witness. Also, the current statutory Notice alerting the principal to their rights, which the principal must read and sign before proceeding to execute the POA, has been modified. Likewise, the Acknowledgment form to be executed by the Agent prior to their beginning to serve as the Agent under the POA has also undergone changes. As the statute is not retroactive, it should not have any effect on currently executed valid POAs, but certainly there is an issue if a prospective Agent has not executed an acknowledgment and begun service as the Agent under a current POA, whether the Agent must execute the new form of Acknowledgement or the old one.

It is generally permitted for an attorney to act as a witness to the execution of certain documents when a notary is not available. The attorney would then have his signature witnessed by a notary public that he witnessed the principal execute the POA and witnessed the witnesses sign in his presence and in the presence of the principal. Such execution procedures prior to Act 95 changes were permitted and are with regards to wills. See, 42 Pa. C.S. § 327(a); 57 Pa. C.S. § 316(2.1). Typically this might occur when a notary is not available and time is of the essence because the client is due to undergo a medical procedure or leave the country. Under Act 95, counsel may no longer stand in for a notary in witnessing the execution of a POA, and a notary may not serve as a witness to a POA if they are also witnessing the execution of the POA in their capacity as a notary public.

Act 95, in an effort to clarify the scope of POAs, stipulates certain powers that must be specifically provided for in order for the Agent to act for the Principal. These include: (1) creating, amending, revoking or terminating a living trust, (2) making a gift, (3) creating or changing rights of survivorship, (4) creating or changing a beneficiary designation, (5) delegating authority granted under the POA, (6) waiving the principal´s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan, (7) exercising fiduciary powers that the Principal has authority to delegate, and (8) disclaiming property, including a Power of Appointment. If the POA does not specifically list these powers, and ideally, explain the scope of the powers in detail, then the Agent may not so act on behalf of the Principal.

Previously, the Pennsylvania Supreme Court issued a ruling that an individual or financial entity relying in good faith on a POA could be liable to the principal or another party for doing so even if the company had no way of knowing the POA was forged or otherwise void on its face. Commonwealth v. Vine, 607 Pa. 648 (Pa. 2010). While the Court recognized the abuses that occasionally occur by purported Agents under POAs, the resulting decision has led many financial companies to refuse to recognize a valid POA and insist that Principals execute separate POAs on the financial companies´ forms, contrary to the plain language of the statute. Act 95 clarifies the protection granted such third parties by granting them the right to reject POAs or to otherwise require verification of same before acting on them. How financial companies will act with regards to Act 95 remains unclear at present. Certainly, agents may now have additional hurdles to overcome before having a valid POA accepted by the financial institution.

The above listed description of Act 95 impact on financial POAs is only a brief summary of the primary provisions. Additional changes are made throughout the statutes. For specific wording, see: www.legis.state.pa.us