A Power of Attorney is an important legal document that a person can use to appoint others to manage his or her personal affairs if he or she is unavailable or unable to act. Connecticut’s Power of Attorney laws are changing effective October 1, 2016, and we want to help our clients to be informed and prepared for these changes.
Most importantly, don’t panic if you have executed a Power of Attorney prior to October 1, 2016, because Powers executed before that date will remain valid despite the changes in the law. The limited downside of relying on an older Power is that it might not take advantage of all of the new provisions of the law discussed below. For that reason, we recommend that you discuss updating your Power of Attorney with your estate planning lawyer when you have a chance, but there is no need to rush unless your health is declining.
As we discuss the important new provisions of the law below, please keep in mind that the “Principal” is the client, who makes the Power of Attorney. The “Agent” is the person or persons whom the Principal appoints in the Power of Attorney to act on his or her behalf.
1. Ensure Valid Powers of Attorney are Respected
One of the primary goals of the new legislation was to ensure that valid Powers of Attorney are given effect in accordance with the Principal’s wishes. Estate planning lawyers have been aware of numerous instances of financial institutions and others refusing to accept valid Powers of Attorney for reasons that many consider unjustified, such as the Power of Attorney being more than a few years old. Granted, the organizations that refused to accept Powers were acting out of their own interest for self-preservation, since they faced uncertain liability for acting on a Power that was no longer valid.
The new law seeks to address the uncertainty in part by stating clearly what circumstances will cause a Power of Attorney to become invalid (e.g., death of the principal or agent; revocation by the principal; the incapacity of the agent; the Power is terminated by a court). The mere passage of time is not something that invalidates a Power of Attorney.
The legislation also adds new protections for the person receiving a Power of Attorney. If the Principal’s signature on the Power of Attorney was acknowledged by a Notary Public (as most Powers are even under current law), then the person accepting the Power of Attorney is not liable for relying on the Power without actual knowledge that the Power is invalid. It is hoped that this protection will make financial institutions less skittish about accepting Powers of Attorney.
In case expanded liability protection is not enough to get things moving, the law includes new deadlines so that organizations can’t drag their feet deciding whether to accept a Power. If an acknowledged Power of Attorney is presented to a bank or other organization, the recipient has up to seven business days to accept it or request one or more of the following: (i) an agent’s certification that the Power is valid, (ii) an English translation of a non-English Power; and/or (iii) an opinion of counsel that the Power is valid. Once this additional information is presented, the person receiving the Power of Attorney must accept it (or deny it if there are grounds) within five business days. The only grounds for denying a Power of Attorney are (i) the recipient knows or has a good faith belief that it is invalid, or (ii) someone has filed a formal complaint with the State of Connecticut that the Principal was the victim of elder abuse.
If someone refuses to accept an acknowledged Power of Attorney without justification, the Probate Court can issue an order compelling acceptance and can order the recipient to pay for the legal fees and costs associated with the action to compel.
2. Define Duties of Agents
The new Power of Attorney act clearly describes the duties of Agents. All Agents have a duty to act in accordance with the Principal’s reasonable expectations; to act in good faith; and to act within the scope of authority granted in the Power of Attorney. Unless the Power of Attorney provides otherwise, Agents also must act loyally for the Principal’s benefit; avoid creating conflicts of interest; act with the care, competence and diligence ordinarily exercised by Agents in similar circumstances; keep a record of all transactions; cooperate with the Principal’s health care agent; and attempt to preserve the Principal’s estate plan.
Also, Agents are not required to disclose transactions to anyone unless ordered by a court or requested by the Principal, a guardian or conservator of the Principal, or the Principal’s executor.
3. Allow Interested Parties to Challenge an Agent’s Actions
The new law expands the class of people who can bring an action requesting a court to review the actions of an Agent under a Power of Attorney. Under the prior law, even some close family members did not have standing to challenge an Agent’s actions, which was frustrating when they knew the Agent was acting improperly. This expansion of those with standing to challenge the Agent’s authority is important because typically the Power of Attorney is used in circumstances when the Principal has limited or no capacity to safeguard his or her own interests, and family members have the greatest interest in supervising an Agent.
Effective October 1, 2016, the following persons will be able to ask a court to review actions of an Agent: the Principal or an Agent; a guardian or conservator of the Principal; the Principal’s health care agent; the Principal’s spouse, parent or descendant; the Principal’s presumptive heir; a beneficiary of the Principal’s estate; the Connecticut Department of Social Services; the Principal’s caregiver; and a proposed Agent. To help protect against unwarranted inquiries, the law says that if the Principal has capacity, he or she can dismiss any inquiry brought against the Agent.
4. Define Agents’ Authority
The Power of Attorney Act defines specific powers granted to an Agent for each of the broad categories described in the Power of Attorney. The categories are little changed from prior law, but the detailed descriptions will be extremely helpful to use in demonstrating to those receiving Powers of Attorney that the Agent is authorized to complete a particular transaction. For example, a grant of general authority with respect to stocks and bonds authorizes the Agent to: buy, sell and exchange stocks and bonds; establish, continue, modify and terminate an account; pledge stocks and bonds; receive certificates; and exercise voting rights.
The new law creates new categories of actions, generally related to estate planning transactions, that must be expressly included in the Power of Attorney for the Agent to have power to take these actions, including the power to create, amend or revoke a trust; make a gift; create or change rights of survivorship; create or change a beneficiary designation; delegate authority to someone else; waive the Principal’s rights to a joint and survivor annuity or survivor benefit under a retirement plan; exercise fiduciary powers on behalf of the Principal; and disclaim property.
And regarding gifts in particular, unless the Power of Attorney says otherwise, an Agent who is not an ancestor, spouse or descendant of the Principal, cannot make a gift to the Agent himself or herself or to a person to whom the Agent owes a duty of support. Also, unless the Power of Attorney otherwise provides, a general grant of authority to make gifts only authorizes the Agent to make gifts up to the annual exclusion amount per person ($14,000 in 2016).
Because the purpose of the Power of Attorney within an estate plan is to ensure continuity of everything a Principal can do if he or she becomes incapacitated, we recommend including all of these estate planning-related powers in Powers of Attorney. In fact, this is the main reason someone who already has a Power of Attorney should consider signing a new Power of Attorney using the new form after October 1, 2016: to ensure that the Agents have as broad of an authorization to act as possible. Of course, with great power comes great responsibility, and it is essential, as always, that Principals select qualified, trustworthy individuals as their Agents who will properly exercise these powers.
5. Powers are “Durable” by Default
When the new law takes effect, all Powers of Attorney will be deemed durable (i.e., the Agent’s authority will remain valid even if the Principal loses mental capacity) unless the Power states otherwise. In most cases, this change is insignificant for estate planning clients because most Powers of Attorney under the prior law included language making them durable. Indeed, the primary purpose of a Power of Attorney is to authorize an Agent to act in the event of the Principal’s incapacity. This change to the law simply changes the default classification of Powers of Attorney from non-durable to durable.
6. New Statutory Forms
The new Power of Attorney Act includes two statutory forms for the Power of Attorney. The “Short Form” is very similar to the form that was in use under prior law. The Short Form does not include any of the new, specific estate-planning related powers.
The Act has added a new “Long Form” that includes all of the special estate planning powers. In practice, we expect that estate planners and estate planning clients will utilize the Long Form because the intention within the estate planning context usually is to authorize Agents to act as broadly as possible.
What Should You Do?
We believe it is good practice for everyone to have a Power of Attorney. Read more about the reasons in this blog post. We also recommend in most cases that the Power of Attorney should give the Agent as broad authority as possible.
If you don’t yet have a Power of Attorney, we’d be happy to prepare one for you using the new forms.
If you have a Power of Attorney signed prior to October 1, 2016, don’t panic, but call us at your convenience so we can help you update your document to the new form. It will be a good opportunity to review your existing Power of Attorney and other estate planning documents to consider if you’d like to make any other changes.
If you would like our assistance in drafting a new Power of Attorney, or in reviewing any other aspect of your existing estate plan that may be out of date, please contact us by calling 203-325-4477 or by using the contact form on our website.