Most Durable Powers of Attorney Should Be Reviewed
Durable powers of attorney are a core part of a basic or Phase 1 estate plan. Their place within a plan is much like a will, as a backup to a revocable living trust- which is the centerpiece of an estate plan and generally designed to avoid probate and guardianship. A durable power of attorney (“DPOA”) is often used to fix estate planning deficiencies or to continue gifting or more advanced Phase 2 or 3 estate planning after a senior family member is unable to do so as a result of incapacity. A more basic purpose of a DPOA is to assist with avoidance of guardianship proceedings and to allow certain ordinary and necessary routine matters of life to carry-on without the need for appointment of a court ordered guardian. October 1, 2011, Florida law concerning powers of attorney (including those that are durable) changes and most durable or nondurable powers of attorney should be changed. (Note: durable means matters undertaken by the agent are not void if the person appointing them (the “principal”) is eventually adjudicated to have been incapacitated.)
The formalities associated with creation of a power of attorney; who may serve as agent and be compensated; the agent’s duties, authority, and liability exposure; the manner in which a third party must reject an agent’s appointment; and the liability of a third-party, such as a financial institution, for rejecting or refusing to honor the direction of an agent have all been changed by this new legislation. Historically, having a financial institution respect even a close family member’s appointment could be time consuming, often depending upon the familiarity of and relationships with representatives of the institution. Weeks or months of time could be lost convincing an financial institution, through their legal department, to honor the appointment and requested action. After October 1, 2011, the financial institution has four business days to accept or reject the appointment and request of a DPOA agent, except in unusual circumstances.
A common deficiency in DPOAs is a failure to authorize certain actions needed to continue or perfect estate planning, or a failure to do so in a proper way. Continuing gifts, specifying the type of gifts, and how gifts can be made; implementing or continuing additional tax reduction planning; creating or modifying trusts; issuing “crummy notices” as they relate to gift tax returns and compliance; permitting a surviving spouse to disclaim; and creation or change of beneficiary designations are examples of provisions that are often important to have in DPOAs, but are often omitted or improperly drafted. Under the new rules, these provisions may be contained in DPOAs but must be included in particular ways, that require the principal to sign or initial next to the grant of power or authority.
DPOAs are secondary to the revocable living trust in the estate plan, but can be important. Their importance is dictated by their common use in time of vulnerability, often at a time where death of the principal is imminent and timely use is needed to reduce taxes, avoid the costs of probate or guardianship, or to benefit the principal or their family in any number of possible ways. The amount of effort that has gone into this new legislation and the scope of new laws highlights the importance of DPOAs and a recognition of their use in unique circumstances that can be important to families.