1 THE UNIFORM POWER OF ATTORNEY ACT: STRIKING A BALANCE BETWEEN AUTONOMY AND PROTECTION Linda S. Whitton * I. INTRODUCTION II. FACILITATING AUTONOMOUS CHOICE A. Flexibility in Tailoring Delegated Authority B. Clear Guidelines for Agent Conduct C. Protection of the Principal s Surrogate Decision-Making Plan Protecting the Principal s Choice of Agent Deterring Arbitrary Refusals of Powers of Attorney by Third Persons III. PROTECTING AGAINST FINANCIAL ABUSE A. Transactions that Exceed the Intended Scope of Authority B. Transactions Conducted for Self-Dealing Purposes C. Transactions Conducted in Contravention of the Principal s Expectations IV. USE OF DURABLE POWERS FOR ECONOMIC PLANNING IN THE GOLDEN YEARS A. The Autonomy-Versus-Protection Tension B. Avoiding the Tarnish of a Power of Attorney Gone Awry V. CONCLUSION I. INTRODUCTION The new Uniform Power of Attorney Act (Act), 1 which supersedes the Uniform Durable Power of Attorney Act, 2 was drafted to provide greater guidance for all parties affected by the power of attorney relationship: the principal, the agent, and third persons who are asked to accept the agent s authority. 3 In determining where to strike the balance between a competent principal s self-determination interests and an incapacitated principal s need for protection against unscrupulous agent conduct, the Drafting Committee reviewed state power of attorney legislation, the results of a national survey * Professor of Law, Valparaiso University School of Law; Reporter, Uniform Power of Attorney Act. 1 UNIF.POWER ATT Y ACT, 8B U.L.A. 22 (2007). 2 UNIF.DURABLE POWER ATT Y ACT (amended 1987), 8A U.L.A. 234 (2003). 3 UNIF.POWER ATT Y ACT prefatory note.
2 344 PHOENIX LAW REVIEW [Vol. 1:343 on power of attorney legislative reform, 4 and feedback from numerous bar associations and professional groups. 5 As Reporter for the Act, I have published articles examining the Act s fundamental characteristics; 6 the policy implications of balancing protections among the principal, the agent, and third persons; 7 and the lessons learned from using durable powers as an alternative to guardianship. 8 This Article is a more narrowly targeted exploration of the Act s ramifications for economic planning in the golden years, the topic of this symposium. Specifically, this Article examines features of the Act that facilitate a principal s autonomous choices as well as those that protect principals who later become incapacitated. The dual objectives of autonomy in the creation of surrogate authority and protection of incapacitated principals were discussed at length during the drafting process, 9 and they continue to stimulate lively debates within 4 Id.; see also LINDA S. WHITTON, NAT L CONFERENCE OF COMM RS ON UNIF. STATE LAWS, NATIONAL DURABLE POWER OF ATTORNEY SURVEY RESULTS AND ANALYSIS (2002), 5 UNIF.POWER ATT Y ACT prefatory note. 6 Linda S. Whitton, Navigating the Uniform Power of Attorney Act, 3 NAELA J. 1 (2007) [hereinafter Whitton, Navigating]. 7 Linda S. Whitton, The New Uniform Power of Attorney Act: Balancing Protection of the Principal, the Agent, and Third Persons, in PROCEEDINGS OF THE 41ST ANNUAL HECKERLING INSTITUTE ON ESTATE PLANNING 9-1 (Matthew Bender 2007) [hereinafter Whitton, Balancing]. 8 Linda S. Whitton, Durable Powers as an Alternative to Guardianship: Lessons We Have Learned, 37 STETSON L. REV. 7 (2007) [hereinafter Whitton, Lessons]. 9 From January 2004 to December 2006, the author, as Reporter for the Uniform Power of Attorney Act, met numerous times with the Joint Editorial Board for Uniform Trust and Estate Acts, the National Conference of Lawyers and Corporate Fiduciaries, committees of the American College of Trust and Estate Counsel, and the leadership and committees of the ABA Section of Real Property, Trust and Estate Law. She also participated in programs for the National Academy of Elder Law Attorneys, the New York State Bar Association Trusts and Estates Law Section, and the District of Columbia Bar Association Trusts and Estates Section. Memorandum, from Linda S. Whitton, Reporter, Unif. Power Att y Act, Meetings and Presentations on Uniform Power of Attorney Act, January 2004-December 2006 [hereinafter Memorandum] (on file with Phoenix Law Review). From 2003 through 2006, the Drafting Committee had seven meetings which were attended by the Drafting Committee members, Advisors from the American Bar Association (ABA), and an assortment of observers from a number of organizations, including the American Bankers Association, American Association of Retired Persons, and the ABA Commission on Law and Aging. ARCHIVE COLLECTION, DRAFTS AND FINAL ACTS, NAT L CONFERENCE OF COMM RS ON UNIF. STATE LAWS, UNIF. POWER ATT Y ACT, available at (last visited Jan. 3, 2008) (follow Uniform Power of Attorney hyperlink) [hereinafter Archives].
3 2008] THE UNIFORM POWER OF ATTORNEY ACT 345 state study committees considering adoption of the Act. 10 Estate planning practitioners, elder protection advocates, and representatives from banking, trust, and insurance companies participated in these discussions. 11 While such debates often view autonomy and protection as competing goals, careful examination of the Act reveals that certain protections may actually increase the latitude that a legislature is willing to afford principals in the creation of durable surrogate authority. The focus of this Article is analysis of that delicate balance. The first part of this Article examines provisions of the Act that facilitate surrogate implementation of the principal s choices and goals. This discussion is organized according to the primary objectives of these provisions: (1) flexibility in tailoring delegated authority; 12 (2) clear guidelines for agent conduct; 13 and (3) protection of the principal s surrogate decision making plan. 14 The second part of this Article explores protections against financial abuse. These provisions are discussed in relation to the primary types of financial abuse: (1) transactions that exceed the intended scope of authority; 15 (2) transactions conducted for self-dealing purposes; 16 and (3) transactions conducted in contravention of the principal s expectations. 17 Based on the foregoing analyses, the final part of this Article distills insights about the role of durable powers in economic planning for the golden years. II. FACILITATING AUTONOMOUS CHOICE In theory, a durable power of attorney is a far more flexible mechanism for surrogate property management than either a guardianship or a trust. 18 Unlike a guardianship, where both the extent of the protected person s property and the guardian s actions are subject to court scrutiny, the power of attorney is a private arrangement between the principal and the agent The author, as Reporter for the Act, bases this comment on communication with the study committees of seven states (Idaho, Ohio, Maine, Maryland, Michigan, Wisconsin, and Virginia). Idaho recently adopted the Act. 11 Memorandum and Archives, supra note See infra notes and accompanying text. 13 See infra notes and accompanying text. 14 See infra notes and accompanying text. 15 See infra notes and accompanying text. 16 See infra notes and accompanying text. 17 See infra notes and accompanying text. 18 See Whitton, Lessons, supra note 8, at (comparing the respective attributes of guardianships and trusts with those of durable powers for surrogate decision making). 19 Id.
4 346 PHOENIX LAW REVIEW [Vol. 1:343 Unlike a trust, where the settlor s property must be retitled in the name of the trust, a power of attorney allows the principal to retain full legal and equitable ownership of his assets while delegating to the agent a defined scope of authority to act in the principal s stead. The success of a power of attorney for surrogate property management depends on how effectively the scope of authority is delineated, how faithfully the agent acts to manifest the principal s expectations, and how willing third persons and would-be surrogates are to honor the principal s choice of agent. 20 The following discussion addresses how the Act facilitates flexibility in the creation of surrogate authority, provides clear guidelines for the agent s conduct, and protects the principal s surrogate decision-making plan by deterring badfaith attacks on the agent s authority and arbitrary refusals of the power of attorney. A. Flexibility in Tailoring Delegated Authority In contrast with the Uniform Durable Power of Attorney Act, which did not provide statutory definitions of the areas of authority that can be delegated to an agent, 21 the Act contains detailed descriptions that may be incorporated into the power of attorney by reference to the subject matter or by citation to the relevant statutory section. 22 Defined areas of authority 20 See id. (listing these conclusions as among the lessons learned through society s use of durable powers as an alternative to guardianship). 21 The Uniform Durable Power of Attorney Act (UDPAA) was first approved as a freestanding Uniform Act and as an alternative to part 5 of article 5 of the Uniform Probate Code by the National Conference of Commissioners on Uniform State Laws in JOHN H. LANGBEIN &LAWRENCE W. WAGGONER,UNIFORM TRUST AND ESTATE STATUTES 300 ( ). The UDPAA consisted of only five sections, identical to Sections to of the Uniform Probate Code. Id. The five sections of the UDPAA: (1) permitted a principal to create a power of attorney that would survive the principal s incapacity; (2) established that an attorney-in-fact s authority was not affected by a lapse of time and that actions of the attorney-in-fact were binding notwithstanding the principal s incapacity; (3) set forth the relationship of the attorney-in-fact to a later court-appointed fiduciary; (4) provided that revocation or termination of a power of attorney is not effective until there is actual knowledge of the event that constitutes revocation or termination; and (5) established that an affidavit by the attorney-in-fact stating that there was no actual knowledge of the termination of the power of attorney at the time of exercise of the power is conclusive proof of nontermination at that time. UNIF.DURABLE POWER ATT Y ACT (amended 1987), 8A U.L.A. 234 (2003). 22 See UNIF. POWER ATT Y ACT , 8B U.L.A. 51 (2007) (providing statutory construction language for various subject areas of authority such as real property, tangible personal property, and stocks and bonds ). Sections 202(a) and (b) of the Act provide that:
5 2008] THE UNIFORM POWER OF ATTORNEY ACT 347 may also be enlarged or limited through use of specific language in the power of attorney. 23 This drafting flexibility is permitted whether the principal uses the optional statutory form or drafts an individualized power of attorney. 24 Much of the boilerplate definitional language in the Act was taken from the Uniform Statutory Form Power of Attorney Act 25 and updated where necessary to comport with modern-day transactions. 26 An innovation and departure from the Uniform Statutory Form Power of Attorney Act is the identification of areas of authority that must be granted to an agent with express language. 27 A specific grant of authority is required for an agent to: create, amend, revoke, or terminate an inter-vivos trust; make a gift; create or change rights of survivorship; create or change a beneficiary designation; authorize another person to exercise authority granted to the agent; waive the principal s right to be a beneficiary of a joint and survivor annuity; exercise fiduciary powers that the principal has authority to delegate; and (a) An agent has authority described in this [article] if the power of attorney refers to general authority with respect to the descriptive term for the subjects stated in Sections 204 through 217 or cites the section in which the authority is described. (b) A reference in a power of attorney to general authority with respect to the descriptive term for a subject in Sections 204 through 217 or a citation to a section of Sections 204 through 217 incorporates the entire section as if it were set out in full in the power of attorney. 23 Id. 202(c) ( A principal may modify authority incorporated by reference. ). 24 See id. 301 (including, on the statutory form, the subject area labels described in Sections 204 through 217). 25 UNIF.STATUTORY FORM POWER ATT Y ACT (1988), 8B U.L.A. 191 (2001). 26 UNIF.POWER ATT Y ACT art. 2 cmt. 27 Id. 201 cmt.
6 348 PHOENIX LAW REVIEW [Vol. 1:343 disclaim or refuse an interest in property. 28 The Act makes clear that a general grant of authority (e.g., I give my agent authority to do all acts that I could do if competent ) does not include this special list of powers. 29 Referred to informally as the hot powers by the Drafting Committee, these powers were selected for special treatment because of their potential for dissipating the principal s property and altering the principal s estate plan. 30 Although the Act s list of hot powers is more comprehensive than any existing in state statutes when the Act was drafted, a number of states had taken similar statutory approaches with respect to gift-making authority, the power to create or revoke a trust, and authority to use other non-probate planning devices such as beneficiary designations and survivorship interests. 31 In states without such provisions, the case law is divided on whether a general grant of authority includes, for example, authority to make a gift. 32 Requiring a specific grant of authority for these hot powers not only protects principals from the inadvertent grant of potentially dangerous powers, but also clarifies that a principal may delegate such authority if desired. During drafting discussions, a minority view was expressed that perhaps some of the hot powers should be deemed non-delegable given the potential for abuse. 33 Proponents of this view argued that, if the power to make a last will and testament is non-delegable, why should authority to make or revoke a trust, or to create or change survivorship interests and beneficiary designations be permitted? While it is true that an estate plan can be accomplished using these devices in lieu of a will, there are also inter-vivos objectives that could not be accomplished if delegation of authority for such 28 Id. 201(a). 29 Id. 201(c). 30 Id. 201 cmt. 31 See, e.g., CAL. PROB.CODE 4264 (Deering 2004); FLA.STAT. ANN (7)(b)(5) (LexisNexis Supp. 2007); KAN. STAT. ANN (f) (2006); KY. REV. STAT. ANN (LexisNexis 2006); MO.ANN.STAT (West 2001); 20 PA.CONS.STAT. ANN (West 2005); VT.STAT.ANN. tit. 14, 3504 (2002); WASH.REV.CODE ANN (LexisNexis 2007). 32 See, e.g., Estate of Pruitt v. Comm r, 80 T.C.M. (CCH) 348, 354 (2000) (inferring power to make gifts in order to give effect to the decedent s intent); LeCraw v. LeCraw, 401 S.E.2d 697, 699 (Ga. 1991) (affirming declaratory judgment that power of attorney authorized gifts made by attorneys-in-fact). 33 See Memorandum, supra note 9 (an opinion expressed at a few of the meeting venues listed).
7 2008] THE UNIFORM POWER OF ATTORNEY ACT 349 acts were prohibited. 34 Examples include transactions for donative purposes, tax minimization, and qualification of the principal for public benefits. 35 Given that the hot powers should be delegated intentionally based on individual client objectives, the Act does not contain default statutory definitional language for any of these powers other than the authority to make a gift. As the Act commentary notes, the Act contemplates that the principal will specify any special instructions in the power of attorney to further define or limit the authority granted. 36 With respect to gift-making authority, the Act follows the lead of states that set default limits on perdonee gift amounts that can be enlarged or removed by express language in the power of attorney. 37 B. Clear Guidelines for Agent Conduct In addition to permitting great flexibility in tailoring the scope of an agent s authority, the Act recognizes the principal s expectations as paramount among the guidelines for agent conduct. 38 Even though much of the Act is comprised of default provisions that can be modified through express drafting, three mandatory duties constrain all agents. 39 Agents must act: 1) according to the principal s reasonable expectations, if known, and otherwise in the principal s best interest; 2) in good faith; and 3) within the scope of authority granted. 40 Thus, to the extent a principal s expectations are known to an agent, the agent may be authorized to engage in transactions that might not meet a best-interest test. For example, the principal may prefer receiving long-term care in a home environment for as long as possible even though that option is far more expensive than the institutional care that a reasonably prudent person might choose in similar circumstances. Likewise, the principal may want the agent to carry out donative activities that do not represent any direct best-interest benefit to 34 Jeffrey A. Marshall, Power of Attorney Key Issues for Elder Care Planning, 74 PA.B. ASS N Q. 160, (2003). 35 Id. 36 UNIF.POWER ATT Y ACT 201 cmt., 8B U.L.A. 49 (2007). 37 See, e.g., N.Y.GEN. OBLIG. LAW M (McKinney 2001); 20 PA. CONS. STAT. ANN. 5603(a)(2)(ii) (West 2005). 38 UNIF.POWER ATT Y ACT 114(a)(1). 39 Id. art. 1 cmt. 40 Id. 114(a)(1)-(3).
8 350 PHOENIX LAW REVIEW [Vol. 1:343 the principal. These donative activities might even include transactions that benefit the agent or agent s family. 41 While the principal s reasonable expectations, if known, trump best interest as the guideline for agent conduct, an agent is also constrained by the Act s default duties unless these are deleted or modified by express language in the power of attorney. Agents are required by the default duties to: act loyally for the principal s benefit; avoid creating a conflict of interest that impairs the ability to act impartially in the principal s best interest; act with the care, competence, and diligence ordinarily exercised by agents in similar circumstances; keep records; cooperate with a person that has authority to make healthcare decisions for the principal; attempt to preserve the principal s estate plan to the extent the plan is known to the agent and preservation is consistent with the principal s best interest; and give an accounting, if requested by the principal, a fiduciary appointed for the principal, a governmental agency having authority to protect the principal s welfare, the personal representative or successor in interest of the principal s estate, or if ordered by a court. 42 In light of these default duties, an agent is not free, for example, to engage in self-dealing transactions unless the principal has expressed these expectations to the agent and, if necessary, has modified the default duties that would otherwise constrain such conduct. 43 Although nothing in the Act requires a principal to make known his expectations in the language of the power of attorney, making those expectations known in some admissible 41 See generally id. 114 cmt. (discussing how the policy preference for a substituted judgment standard over a best interest standard for agent conduct better protects the principal s self-determination interests). 42 Id. 114(b)(1)-(6), (h). 43 Id. 114 cmt.
9 2008] THE UNIFORM POWER OF ATTORNEY ACT 351 form best protects the self-determination interests of the principal and reduces the agent s risk of liability. 44 C. Protection of the Principal s Surrogate Decision-Making Plan The old adage that the best laid plans may go awry is apropos for circumstances where a validly executed power of attorney is ineffectual either because the agent s authority is attacked by a collateral guardianship action or because the power of attorney is refused by third persons. 45 The law reform challenge posed by these problems is particularly daunting in that the statutory solution must both deter bad-faith attacks and arbitrary refusals while still permitting termination of the agent s authority or refusal of the power of attorney for good cause. The following describes how the Act achieves these objectives. 1. Protecting the Principal s Choice of Agent According to news accounts, the incidence of family feuds over elderly relatives and their assets appears to be increasing. Stories of the battles between the son and grandson of the late Brooke Astor and those between the son and daughter of Lillian Glasser make headlines because of the considerable wealth at issue, 46 but anecdotal reports suggest that, even in families of lesser means, guardianship has become a will contest waged while the vulnerable person is still alive. 47 Unfortunately, a seemingly benign provision in the original Uniform Durable Power of Attorney Act provides an effective tool for would-be surrogates attempting to undermine the authority of the principal s designated agent. This provision gives a court-appointed fiduciary the same power to revoke or amend the power of 44 Id. 45 See Whitton, Lessons, supra note 8, at (discussing the use of guardianship to usurp an agent s authority and the problem of arbitrary refusals and strategies to combat it). 46 Rachel Emma Silverman, Latest Custody Battle: Who Gets Mom, WALL ST. J., Aug. 17, 2006, at D1. 47 Audio webcast: Legal Battles over Parental Guardianship, Legal Affairs, held by National Public Radio, Talk of the Nation program (Aug. 23, 2006), templates/story/story.php?storyid= The following cases also illustrate the problem of would-be surrogates attempting to circumvent the principal s choice of agent with a guardianship action. In each, the challenger was successful in the court of first instance, but the guardianship was reversed on appeal: In re Guardianship of Smith, 684 N.E.2d 613 (Mass. App. Ct. 1997); In re Hartwig, 656 N.W.2d 268 (Neb. Ct. App. 2003); In re Sylvester, 598 A.2d 76 (Pa. Super. Ct. 1991).
10 352 PHOENIX LAW REVIEW [Vol. 1:343 attorney that the principal would have had if he were not disabled or incapacitated. 48 Given the widespread adoption of the Uniform Durable Power of Attorney Act, many state power-of-attorney statutes contain this provision. 49 A challenger to the agent s authority in such a state need only obtain guardianship and then revoke the power of attorney. In response to this problem, the new Act provides that, if there is a later appointment of a guardian or conservator, [t]he power of attorney is not terminated and the agent s authority continues unless limited, suspended, or terminated by the court. 50 This approach assures that the court will consider the adequacy of the power of attorney and the agent s performance before appointing a fiduciary to supplement or replace the principal s chosen agent Deterring Arbitrary Refusals of Powers of Attorney by Third Persons Over the three-year drafting period, sessions were held at professional meetings across the country to solicit practitioner input for the Act. At these meetings, many participants shared their frustration about the arbitrary refusals of powers of attorney by third persons such as banks and brokerage houses. 52 Responses to a national survey by the Joint Editorial Board for Uniform Trust and Estate Acts echoed this concern. 53 Sixty-three percent of the respondents indicated that they had encountered a problem with refusals; seventeen percent indicated that it was a frequent problem. 54 At the time the final Act was approved, eleven states already recognized some level of liability for unreasonable refusal of a power of attorney. 55 Few of these statutes, however, provided much guidance to agents or third 48 UNIF.DURABLE POWER ATT Y ACT 3(a) (amended 1987), 8A U.L.A. 252 (2003). 49 Forty-five jurisdictions had at one time adopted the Uniform Durable Power of Attorney Act. See NAT L CONFERENCE OF COMM RS ON UNIF.STATE LAWS,AGUIDE TO UNIFORM AND MODEL ACTS 11 ( ed.). 50 UNIF.POWER ATT Y ACT 108(b), 8B U.L.A. 32 (2007). 51 Id. 108 cmt. 52 See Memorandum, supra note 9 (summarizing the meetings attended by the Reporter from January 2004 to May 2006 where such comments were made). 53 See WHITTON, supra note 4, at Id. 55 ALASKA STAT (c) (2004); CAL. PROB. CODE 4306(a) (Deering 2004); COLO. REV. STAT. ANN (2) (West 2005); FLA. STAT. ANN (11) (LexisNexis 2006); 755 ILL.COMP.STAT. ANN. 45/2-8 (West 1992); IND.CODE ANN (LexisNexis Supp. 2007); MINN.STAT.ANN (West 2006); N.Y. GEN.OBLIG. LAW (McKinney 2001); N.C. GEN. STAT. 32A-41 (2007); 20 PA. CONS. STAT. ANN (West 2005); S.C. CODE ANN (F)(1) (Supp. 2007).
11 2008] THE UNIFORM POWER OF ATTORNEY ACT 353 persons as to what constitutes protected grounds for good-faith refusals. 56 The Act, however, provides both broad protection for good-faith acceptance of a power of attorney and statutory safe harbors for good-faith refusals. 57 An acceptance of a purportedly 58 acknowledged power of attorney is protected provided the person accepting it has no actual knowledge that the power of attorney or the agent s authority is void, invalid, or terminated or that the agent is exceeding or improperly exercising the agent s authority. 59 Persons who conduct activities through employees are without actual knowledge of a fact if the employee conducting the transaction involving the power of attorney is without actual knowledge of the fact. 60 Although a person may request an agent s certification as to any factual matter and an opinion of counsel as to any matter of law, these precautions are not required for the acceptance of the power of attorney to be protected. 61 The Act also provides that an acknowledged power of attorney may be refused without liability if: (1) the person is not otherwise required to engage in a transaction with the principal in the same circumstances; (2) engaging in a transaction with the agent or the principal in the same circumstances would be inconsistent with federal law; (3) the person has actual knowledge of the termination of the agent s authority or of the power of attorney before exercise of the power; (4) a request for a certification, a translation, or an opinion of counsel under Section 119(d) is refused; (5) the person in good faith believes that the power is not valid or that the agent does not have the authority to 56 See Whitton, Lessons, supra note 8, at (comparing statutory approaches). 57 Id. at UNIF. POWER ATT Y ACT 119(a), 8B U.L.A. 42 (2007) ( For purposes of this section and Section 120, acknowledged means purportedly verified before a notary public or other individual authorized to take acknowledgements. ). This provision clarifies that even the acceptance of a forged power of attorney will be protected provided the person accepting it has no actual knowledge of the forgery. See Whitton, Lessons, supra note 8, at UNIF.POWER ATT Y ACT Id. 119(f). 61 Id. 119 cmt.
12 354 PHOENIX LAW REVIEW [Vol. 1:343 perform the act requested, whether or not a certification, a translation, or an opinion of counsel under Section 119(d) has been requested or provided; or (6) the person makes, or has actual knowledge that another person has made, a report to the [local adult protective services office] stating a good-faith belief that the principal may be subject to physical or financial abuse, neglect, exploitation, or abandonment by the agent or a person acting for or with the agent. 62 Only when a refusal does not meet one of the foregoing safe harbors is the person subject to a court order mandating acceptance and to liability for the costs and attorney s fees incurred to obtain the mandate. 63 While the Act does not preclude recovery of actual damages for a refusal, it emphasizes recoupment of fees and costs because practitioners indicated to the Drafting Committee that costs and delays are the biggest deterrents to litigating power of attorney refusals. 64 At meetings where this problem was discussed, practitioners noted that actual damages are often difficult to prove and that obtaining a guardianship is generally faster and less expensive than litigating the refusal. 65 This approach, while pragmatic, comes at the expense of the autonomy and privacy interests of the principal. The scant case law on power-of-attorney refusals seems to substantiate this anecdotal feedback. 66 More significantly, the absence of such case law in jurisdictions that recognize statutory liability for refusals seems to also substantiate the deterrent effect of those provisions. 62 Id. 120(b) (Alternative A). The Act offers adopting states a choice between this alternative provision and one labeled Alternative B, which limits liability to refusals of an acknowledged statutory form power of attorney. Alternatives A and B are identical except that Alternative B applies only to acknowledged statutory form powers of attorney while Alternative A applies to all acknowledged powers of attorney. 63 Id. 120(c) (Alternative A); Id. 120(d) (Alternative B). 64 See Memorandum, supra note 9 (statements by meeting participants). 65 Id. 66 For a rare case litigating the refusal of a power of attorney, see Maenhoudt v. Stanley Bank, 115 P.3d 157, 161 (Kan. Ct. App. 2005) (finding material issues of genuine fact related to a bank s unqualified refusal to honor a power of attorney and reversing lower court s grant of summary judgment).
13 2008] THE UNIFORM POWER OF ATTORNEY ACT 355 III. PROTECTING AGAINST FINANCIAL ABUSE From an autonomy standpoint, freedom to choose an agent and to delegate whatever scope of authority a principal desires is appealing. However, the durable power of attorney relationship exists in the shadow of possible principal incapacity and the inability to monitor an agent s conduct. In states that are considering adoption of the Act, study committees are as concerned about the potential for financial abuse with a power of attorney as they are about deterring arbitrary refusals and promoting the principal s autonomy interests. 67 The following discussion explores the Act s response to common types of abuse perpetrated with powers of attorney transactions that exceed the scope of authority, self-dealing transactions, and transactions that contravene the principal s expectations. A. Transactions that Exceed the Intended Scope of Authority Agents who exceed the scope of authority provided by a power of attorney may do so intentionally or as a result of a misunderstanding about the limits of their surrogate authority. 68 In theory, a third party cannot, in good faith (i.e., with honesty-in-fact), 69 accept a power of attorney for a transaction not authorized by the document. 70 In reality, what the power of attorney actually authorizes may not be clear to the person who is asked to accept the document. The meaning of authority with respect to certain subject matters may vary from state to state. 71 Even within a particular jurisdiction the variety of formats in which a power of attorney may be presented is virtually unlimited because principals are not required to use a standard statutory form or the services of a lawyer. 67 See supra note 10 (listing the state study committees with which the author has communicated). 68 See Richard B. Vincent, Financial Exploitation Involving Agents under Powers of Attorney, VICTIMIZATION OF THE ELDERLY &DISABLED (Civic Research Inst., Kingston, N.J.), May-June 2000, at 3-4 (noting that even a clear prohibition in the power of attorney against making gifts cannot prevent an abusive agent from converting the principal s property, and [b]y educating the agent as to his or her duties... financial mismanagement and inadvertent abuse by an inexperienced agent may be avoided ). 69 UNIF.POWER ATT Y ACT 102(4), 8B U.L.A. 22 (2007). 70 See Daniel A. Wentworth, Durable Powers of Attorney: Considering the Financial Institution s Perspective, 17 PROB. &PROP. 37, (Nov.-Dec. 2003) (discussing bank liability for transactions that exceed the scope of authority granted in the power of attorney). 71 See generally Linda S. Whitton, Crossing State Lines with Durable Powers, 17 PROB.& PROP. 28 (Sept.-Oct. 2003) (discussing common inconsistencies among state power of attorney statutes).
14 356 PHOENIX LAW REVIEW [Vol. 1:343 While no magic statutory bullet exists to prevent agents from abusing their authority, the Act contains provisions that may help deter, detect, and redress such abuse. 72 Probably the most proactive of these is the mandate that express language is required to convey the hot powers those enumerated acts with a particularly high propensity for dissipating the principal s property or altering the estate plan. 73 This approach effectively eliminates an agent s argument that a general grant of authority was intended to include authority for these potentially dangerous acts. The Act s standardized definitions for the various subject areas of authority may also reduce the number of transactions that exceed the scope of authority. Such definitions provide a common field of understanding from which to interpret a power of attorney. Improved clarity about the meaning of authority not only reduces the risk that agents will unintentionally exceed that authority, but also provides ammunition to third persons who wish to reject the power of attorney because it does not authorize the desired transaction. 74 The foregoing safeguards cannot completely prevent agents from exceeding the scope of authority, but they do make exceeding the scope of authority more difficult to accomplish. If an agent does succeed in exceeding the scope of authority, the mandatory duties articulated in the Act provide a basis upon which to find agent liability. An agent found liable for violating the Act must restore the value of the principal s property to what it would have been had the [agent not breached his duties,] and reimburse any attorney s fees and costs advanced from the principal s property to defend the agent. 75 Given that the remedies under the Act are not exclusive, 76 the duties articulated in the Act may also provide a basis for criminal prosecution under separate financial exploitation statutes. 77 Of course, statutorily recognized agent duties and liability will be of no benefit to an exploited, incapacitated principal if there are no means to detect the abuse. Studies of financial abuse often cite the isolation of the 72 See Whitton, Balancing, supra note 7, at 9-6 to 9-8, for a succinct summary of these provisions. 73 See supra notes and accompanying text. 74 UNIF. POWER ATT Y ACT 120(b)(5) (Alternative A); Id. 120(c)(5) (Alternative B). One of the enumerated safe harbors for protected refusals under the Act is refusal because the person in good faith believes that... the agent does not have the authority to perform the act requested. Id. 120(b)(5) (Alternative A). 75 Id Id See, e.g., Carolyn L. Dessin, Financial Abuse of the Elderly: Is the Solution a Problem?, 34 MCGEORGE L. REV. 267, (2003) (discussing the various state legislative responses to financial exploitation).
15 2008] THE UNIFORM POWER OF ATTORNEY ACT 357 victim as a common ingredient of the abuse equation. 78 Thus, a statutory fix for financial abuse perpetrated with a power of attorney must also provide improved means for abuse detection. The Act does this in three ways: (1) adult protective services, or an equivalent governmental agency, has standing to request an agent accounting; (2) any person who demonstrates sufficient interest in the principal s welfare may petition a court to construe a power of attorney or review the agent s conduct; and (3) a person may refuse an otherwise valid power of attorney if the person in good faith believes that the principal may be subject to some type of abuse by the agent or someone acting in concert with the agent, and a report is made to adult protective services. 79 B. Transactions Conducted for Self-Dealing Purposes Probably the most common type of abuse perpetrated with a power of attorney is accomplished through a transaction that is actually within the agent s scope of authority, but which is conducted for the agent s benefit without the principal s permission to self-deal. 80 A case profile from the records of the Santa Clara County District Attorney s Office offers an example of such abuse. 81 The defendant was the daughter of the abuse victims. 82 She had moved into their home and used authority under a power of attorney to refinance their nearly mortgage-free house. 83 The reason stated for the loan was her parents medical bills and the need to modify their home for wheel-chair accessibility. 84 She did not use the money for these purposes; instead, she purchased cars, paid for vacations, and posted bail for friends arrested on drug charges Donna J. Rabiner, David Brown & Janet O Keeffe, Financial Exploitation of Older Persons: Policy Issues and Recommendations for Addressing Them, 16 J. ELDER ABUSE & NEGLECT 65, (2004); John F. Wasik, The Fleecing of America s Elderly, CONSUMERS DIG., Mar.-Apr. 2000, at 77, UNIF. POWER ATT Y ACT 114(h), 116(a)(8), 120(b)(6) (Alternative A), 120(c)(6) (Alternative B). 80 See, e.g., In re Estate of Kurrelmeyer, 895 A.2d 207, 207 (Vt. 2006) (finding a power of attorney authorized attorney-in-fact to create a trust on principal s behalf and to add assets to the trust, but remanding for a determination of whether attorney-in-fact s actions constituted self-dealing in breach of her fiduciary duties). 81 Judith B. Sklar, Elder and Dependent Adult Fraud: A Sampler of Actual Cases to Profile Offenders and the Crimes They Perpetrate, 12 J. ELDER ABUSE &NEGLECT 19, (2000) (using case files to profile offender groups). 82 Id. at Id. at Id. 85 Id.
16 358 PHOENIX LAW REVIEW [Vol. 1:343 This type of abuse is particularly difficult to prevent because the agent is using a valid power of attorney with sufficient authority for the underlying transaction. Permitting refusal of a power of attorney when there is good-faith belief that the principal may be subject to abuse is perhaps the only effective means of stopping such abuse. 86 The Act s additional requirement that the third person make a report to adult protective services is equally important. Without a report of the suspected abuse, the agent will likely attempt the abusive transaction at another location. 87 As previously discussed, the Act contains numerous default duties that prohibit agent self-dealing unless these duties are modified in the power of attorney. The Act further specifies that: unless the power of attorney otherwise provides, an agent that is not an ancestor, spouse, or descendant of the principal, may not exercise authority under a power of attorney to create in the agent, or in an individual to whom the agent owes a legal obligation of support, an interest in the principal s property, whether by gift, right of survivorship, beneficiary designation, disclaimer, or otherwise. 88 Thus, for agents who do not fall within the enumerated degrees of family relationship, there is no defense to self-dealing transactions unless such actions are expressly permitted in the power of attorney. Even with respect to agents who are the principal s ancestor, spouse, or descendant, the above-quoted provision from the Act does not give those agents carte blanches to self-deal. Rather, this provision recognizes that there may be situations where the principal has granted to a family-member agent the authority to make family gifts or support payments and contemplates that the family-member agent will participate in those distributions. Such express authority coupled with the expression of the principal s expectations may be sufficient to permit a benefit to the familymember agent without specific language in the power of attorney that 86 See supra note 79 and accompanying text. 87 At a meeting of the Act study committee in Lansing, Michigan, a bank counsel recounted to the author a true story of an abusive agent who visited every area branch office of the bank attempting to withdraw all of the funds from the principal s bank accounts. 88 UNIF.POWER ATT Y ACT 201(b), 8B U.L.A. 22 (2007).
17 2008] THE UNIFORM POWER OF ATTORNEY ACT 359 expressly permits self-dealing. 89 In these circumstances, it is particularly important to memorialize the principal s expectations in some admissible form. 90 C. Transactions Conducted in Contravention of the Principal s Expectations Perhaps the most insidious type of abuse is the transaction that neither violates the scope of authority nor constitutes self-dealing, but contravenes the principal s expectations a type of abuse for which there is no redress under most current state statutes. The story of Ronald Slomski, recently reported in the Pittsburgh Post-Gazette, is a tragic example. 91 Ronald Slomski is described as a man who married a woman with two daughters, whom he helped raise to adulthood. 92 Slomski named his stepdaughters as the successor beneficiaries of both his pension plan and will. 93 Because he and his wife both became ill, Slomski gave his mother broad authority under a general power of attorney to handle his affairs. 94 Slomski s wife predeceased him by six months. 95 Two weeks before Slomski s own death, his mother instructed his employer to change the beneficiaries on his pension plan to his siblings. 96 The office manager, who was described as uneasy about the change, consulted the company s lawyer, but then permitted Slomski s mother to make the beneficiary changes because she had the authority under Slomski s power of attorney to exercise all powers with respect to retirement plans that the principal could if present. 97 As stated in the newspaper account, by the time Slomski died, [e]verything he had saved had been moved beyond the reach of the heirs designated in his will See id. 201 cmt. ( [A] spouse-agent with express gift-making authority could implement the principal s expectation that annual family gifts be continued without additional authority in the power of attorney. ). 90 Id. 91 See Dennis B. Roddy, Courting Trouble: The Document Granting Power of Attorney Often Leads to Abuse, PITTSBURGH POST-GAZETTE (Sept. 2, 2007), available at 92 Id. 93 Id. 94 Id. 95 Id. 96 Id. 97 Id. (quoting the statutory language). 98 Id.
18 360 PHOENIX LAW REVIEW [Vol. 1:343 Sadly, there may be no recourse under Pennsylvania law for Slomski s step-daughters because Slomski s mother had actual authority to change the beneficiary designations and these changes did not amount to self-dealing in the technical sense. This case illustrates the importance of some of the Act s protective measures. For example, the authority to create or change beneficiary designations is one of the hot powers that must be given with express language and that may not be implied from a general grant of authority to deal with insurance and annuities. 99 Even if the authority to create or change beneficiary designations were expressly included in a power of attorney, the Act also requires all agents to act in accordance with the principal s reasonable expectations to the extent actually known. 100 Furthermore, there is a default duty under the Act to attempt to preserve the principal s estate plan, to the extent actually known by the agent, if preserving the plan is consistent with the principal s best interest. 101 Had Pennsylvania law contained some of these protective features, Slomski s step-daughters may have had recourse to successfully challenge the actions of his agent. IV. USE OF DURABLE POWERS FOR ECONOMIC PLANNING IN THE GOLDEN YEARS As the foregoing discussions reveal, the relationship between autonomy and protection within the context of durable powers is complicated. State legislatures must consider not only the principal s interests, but also those of the agent and the third persons who deal with principals and their agents. 102 The need to protect not only applies to incapacitated principals, but also to agents who may fear liability emanating from contentious family situations or unclear duties, and third persons who may fear liability based upon improper acceptance or rejection of a power of attorney. 103 As a consequence, bringing to fruition a principal s autonomous objectives depends not only on permitting flexibility in the creation of surrogate 99 UNIF.POWER ATT Y ACT 201(a)(4), 210, 8B U.L.A. 22 (2007) (statutory construction language for general authority with respect to insurance and annuities). 100 Id. 114(a)(1). 101 Id. 114(b)(6). 102 See generally Whitton, Balancing, supra note 7 (discussing the need to balance these interests). 103 See Whitton, Lessons, supra note 8, at (discussing the importance of clear agent duties and, in some circumstances, the value of an exoneration provision); id. at (analyzing the importance of protection for good-faith acceptance and good-faith refusal of a power of attorney).
19 2008] THE UNIFORM POWER OF ATTORNEY ACT 361 authority, but also on facilitating the willingness of agents to serve and the willingness of third persons to accept an agent s authority. The legislature must balance all of these interests when crafting the cost-benefit trade-offs in a power of attorney statute. Given the interconnected interests of the principal, the agent, and the third persons who deal with them, it is difficult to dissect those autonomyversus-protection trade-offs that pertain solely to the principal. Nonetheless, the following discussion attempts to look at the extreme ends of the autonomy-versus-protection spectrum from the principal s vantage point on one end, unfettered freedom to create surrogate authority for any delegable action, and on the other, protection that comes at the sacrifice of delegating autonomy. A. The Autonomy-Versus-Protection Tension The New York case, In re Estate of Ferrara, aptly illustrates the double edge of the autonomy-versus-protection tension. 104 The decedent in that case, George Ferrara, was a retired New York stockbroker living in Florida. 105 His closest relatives were a brother, a sister, and their respective children. 106 While living in Florida, Ferrara executed a will bequeathing his estate to a sole beneficiary, the Salvation Army. 107 When Ferrara was later hospitalized, his brother, John, and nephew, Dominick, traveled to Florida to visit him. 108 Dominick later testified that Ferrara expressed his desire to return to New York and asked Dominick to obtain Powers of Attorney for his signature so that [he] could attend to [decedent s] affairs. 109 Ferrara executed Florida powers of attorney and then, ten days after his return to New York with Dominick, he signed and initialed a New York Statutory Short Form Power of Attorney that conveyed authority to Dominick and John as Ferrara s attorneys-in-fact. 110 Ferrara authorized Dominick and John to carry out all of the categories of transactions listed on the pre-printed form and initialed a typewritten addition to the form which stated that [t]his Power of Attorney shall enable the Attorneys in Fact to make gifts without limitation in amount to John Ferrara and/or Dominick N.E.2d 138 (N.Y. 2006). 105 Id. at Id. 107 Id. 108 Id. 109 Id. (brackets in original). 110 Id. at 140.
20 362 PHOENIX LAW REVIEW [Vol. 1:343 Ferrara. 111 This typewritten addition to the form supplemented the default limitations on the statutory form that permit gifts only to the principal s spouse, children and more remote descendants, and parents, and that cap per donee gift amounts at $10,000 per year. 112 The statute further construes this default authority as authorizing gifts only for purposes which the agent reasonably deems to be in the best interest of the principal. 113 In the three weeks between execution of this power of attorney and Ferrara s death, Dominick transferred to himself approximately $820,000 of Ferrara s assets. 114 Dominick testified that Ferrara repeatedly told him that he wanted [Dominick Ferrara] to have all of [decedent s] assets to do with as [he] pleased and that the provision authorizing the unlimited gifts was added [i]n furtherance of [decedent s] wishes. 115 On an action by the Salvation Army for turnover of Ferrara s assets, the Surrogate Court dismissed the petition, finding that the power of attorney was valid and that the best interest limitation in the statute did not apply when express language in the power of attorney permitted gifts in excess of the $10,000 default limitation. 116 The Appellate Division affirmed this decision, 117 but on appeal, the Court of Appeals reversed. 118 The Court of Appeals found that nothing in the statute indicates that the best interest requirement is waived when additional language increases the gift amount or expands the potential beneficiaries and that [t]he term best interest does not include such unqualified generosity to the holder of a power of attorney, especially where the gift virtually impoverishes a donor whose estate plan, shown by a recent will, contradicts any desire to benefit the recipient of the gift. 119 While it may indeed be suspicious that a seriously ill testator ostensibly gave authority to his nephew to engage in self-dealing transactions that undermined the testamentary bequest in his will, the court s interpretation of the New York power-of-attorney statute arguably precludes a principal from conveying gift-making authority to an agent for the sole purpose of effectuating donative intent. The facts of any given case aside, such an interpretation elevates a policy of protecting vulnerable principals over one 111 Id. (brackets in original). 112 Id. at N.Y. GEN.OBLIG.LAW M(1) (McKinney 2001). 114 Ferrara, 852 N.E.2d at Id. at 140 (brackets in original). 116 In re Ferrara, 775 N.Y.S.2d 470 (N.Y. Sur. Ct. 2004). 117 In re Ferrara, 802 N.Y.S.2d 471 (N.Y. App. Div. 2005). 118 Ferrara, 852 N.E.2d at Id. at
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Your Will Who may make a Will? The maker of a Will must be at least 18 years old, of sound mind and free from improper influence. How should a Will be Made? The Will should be written, witnessed and signed
Certified Specialist, Family Law, The California Board of Legal Specialization of the State Bar of California Fellow of the American Academy of Matrimonial Lawyers Fellow of the International Academy of
Rule 3-110 Failing to Act Competently ETHICAL ISSUES IN ESTATE PLANNING FOR THE ELDERLY OR IMPAIRED CLIENT CITATION MATERIALS Rule 3-300 Avoiding Interests Adverse to a Client Rule 3-310 Avoiding the Representation
Chapter 33A. North Carolina Uniform Transfers to Minors Act 33A-1. Definitions. In this Chapter: (1) "Adult" means an individual who has attained the age of 21 years. (2) "Benefit plan" means an employer's