Act 95 of 2014, signed July 2nd by Governor Tom Corbett, made significant modifications to the law governing Powers of Attorney (Chapter 56 of the Probate Estates and Fiduciaries Code, 20 Pa.C.S.A §5601, et. seq.). The changes affect the execution, validity and liability issues surrounding Powers of Attorney and their use by Agents. Because Powers of Attorney used for health care purposes are essentially unchanged by Act 95, this article addresses only financial Powers of Attorney.

Durable General Powers of Attorney (as used in this article, “POAs”) are fundamental estate plan documents used to allow a client (the “Principal”) to appoint another person or entity (the “Agent”) to be a substitute decision-maker as to a broad range of the Principal’s financial matters and transactions.

Typically, POAs are used when the Principal is incapacitated or not able to be physically present for the transaction at hand. For elderly persons suffering from dementia or any person struck by a catastrophic event that results in an inability to manage his or her own financial affairs, POAs have been recommended by estate planning attorneys as powerful and cost-minimizing alternatives to court-appointed guardianships.

As noted above, POAs are governed by a state statute based on (but not identical to) a uniform law promulgated by national estate planning and elder law professionals. The original statute enumerated certain powers that could be granted under a POA and has been amended several times, most significantly in the year 2000 to require the addition of a Notice that must be signed by the Principal and an Acknowledgement that must be signed by the Agent before use of the POA.

Unfortunately, POAs have been used by unscrupulous family members, neighbors, and criminals to separate the Principal from his or her assets. Because some of these cases involve intentional theft and others involve misuse of funds by persons caring for elderly relatives and friends, authorities have long sought additional provisions in the statute to combat these abuses. Those efforts have resulted in the changes set forth in Act 95, some of which took effect with the law’s enactment and some of which will take effect on January 1, 2015.

Below is a summary of the significant changes.

• POAs executed after January 1, 2015 will need to have revised Notices and Acknowledgements. The revised language includes the new direction (formerly implied but now express) that the Agent acts only in accordance with the Principal’s wishes if known by the Agent and, if not known, in the Principal’s best interest; and that the Agent acts in good faith and only within the scope of authority of the POA document.
• Powers executed on or after January 1, 2015 must be witnessed by two people and notarized. Previously, unless the POA was being signed by ‘mark’ by someone unable to sign their own name, the POA did not need to be witnessed or notarized, except to handle real estate matters. The new rules weigh strongly in favor of executing all estate planning documents, and particularly POAs, at an attorney’s office where a notary and witnesses are readily available.
• Certain specific powers have become so-called ‘hot’ powers and must be expressly included in the POA to be authorized. Formerly, only the power to make gifts had to be spelled out, but now powers such as (a) the right to change beneficiary designations on retirement plans, annuities, and life insurance policies; (b) the right to disclaim property; (c) the right to amend or revoke a revocable trust; and (d) the right to create or eliminate a survivorship interest in property (for instance by changing the title of a joint account to tenants in common) require specific authorization and definition of scope.
• The gift power was the original ‘hot’ power and Act 95 further delineates what gifts may be made by Agents and to whom such gifts may be made. Inclusion of a power to make a gift in a POA should be thoroughly discussed between the client and his or her attorney.
• Finally, Act 95 clarifies and modifies the extent to which POAs may be relied upon by third parties (banks, brokerage firms and the like). While third parties may generally rely upon properly executed POAs, the Act also provides that a third party may (a) ask the Principal’s attorney to provide an opinion as to whether the Agent is acting within the scope of authority granted by the POA, (b) request an English translation of the POA, and (c) ask the Agent to certify under penalty of perjury any factual matter regarding the Principal, the Agent, or the POA. The cost of such assurance is to be borne by the Principal. Furthermore, Act 95 also provides that a third party who refuses to accept a POA may be subject to civil liability for harm caused to the Principal’s economic interests.

While it is not necessary that all clients get new and revised Powers of Attorney, we recommend the following:

1. All Powers of Attorney executed prior to 2001 should be reviewed for compliance with the current law.
2. Any new Powers of Attorney must be in the revised form set out in the statute.
3. Clients should consider discussing with their attorneys POAs signed since 2001 if they are concerned about their Agent being able to exercise certain ‘hot’ powers or if they would like to curtail their Agent’s use of those powers.