Planning with Powers of Attorney – the Virginia Uniform Power of Attorney Act - October 2012
I have practiced law in Virginia for almost thirty years, focusing primarily on estate planning and administration, and related business succession planning. Over the last decade, I have found that the number of issues and controversies surrounding the use and abuse of powers of attorneys has increased dramatically. This is probably due to a number of different factors, including our increasingly litigious population, the easy accessibility of form documents via the Internet and other sources, the historical reluctance of third parties to accept powers of attorney in many instances, and the fact that people are living longer because of medical advances.
A national study in 2002 revealed an increasing divergence of legislation among different states with regard to powers of attorney and resulted in the promulgation of the Uniform Power of Attorney Act (“UPOAA”), adopted by Virginia effective in 2010 and now adopted in all fifty states and the District of Columbia. While the pertinent provisions of the Code of Virginia implementing the UPOAA have been repealed, effective October 2012, they will be recodified as of that date with new statutory section numbers, and the UPOAA will remain substantively intact.
In general, there are two types of powers of attorney, one in which the principal grants to another individual, the agent, the immediate right to act on his or her behalf, and the other, sometimes referred to as a “springing” power of attorney, which confers on an agent authority to act contingent on certain conditions being met, usually upon the principal becoming mentally or physically incapacitated.
The UPOAA clarifies and simplifies a number of Virginia statutes which can now be incorporated by specific reference by a principal in his or her power of attorney without having to list each and every power separately; these statutes will be specifically referenced in new title 64.2 of the Virginia Code, effective October 2012.
On the other hand, there are a number of powers, typically known as “hot powers,” which a principal can only grant to an agent by making specific reference to them in the power of attorney:
· Creating, amending or revoking an inter vivos trust
· Making a gift of an amount which is greater than the agent’s usual pattern of gifting
· Creating or modifying survivorship accounts
· Creating or modifying beneficiary designations on plans or policies
· Delegating authority under a power of attorney to a third party
· Waiving a principal’s right to benefit under a joint and survivor annuity or retirement plan
· Exercising fiduciary powers of the principal which may be delegated.
The UPOAA also offers liability protection for third parties, such as banks and financial institutions, which rely on and accept a properly executed and notarized power of attorney. Conversely, there are now statutory penalties for third parties who refuse to accept a properly executed and notarized power of attorney. Historically, clients have often encountered difficulties with banks or financial providers which would not accept a valid power of attorney simply because it was an older document.
A significant change implemented by the UPOAA is that any power of attorney executed on or after July 1, 2010 is now presumed to be durable, meaning that it will remain legally operative upon the incapacity of the principal, unless the document expressly provides otherwise.
I advise clients that a power of attorney is, as the name suggests, a very “powerful” document and should not be executed by a principal without considerable care and thought being given both to its substantive terms and to the agent or agents who are being granted authority to act thereunder. Depending on family dynamics, a family member may or may not always be the best choice to name as an agent under a power of attorney; in some circumstances naming several agents with the requirement that they act jointly may be an appropriate choice.
If a family member or any interested party suspects that an agent under a valid power of attorney is misusing his authority and not acting in the principal’s best interests, there are now appropriate statutory remedies whereby an accounting can be demanded from an agent, either while the principal is still living or after a principal is deceased, for a period within five years prior to the date of the principal’s death.
In conclusion, while the statutory framework governing powers of attorney in Virginia has changed dramatically over the last two years, lending a greater degree of clarity and specificity in this area, and properly drafted powers of attorney can greatly enhance an estate plan, they can also provide opportunities for fraud and abuse if not carefully monitored.
Written by H. Alexander Johnson.