NEW PA POWER OF ATTORNEY LAW
By: PETER REISS, ESQ
Pennsylvania has enacted major changes to its Power of Attorney (POA) law. Act 95 revises Title 20 of the Pennsylvania Code (20 Pa. C.S. Sections 5601-5612), the laws that govern Powers of Attorney used for financial and property transactions.
It is important to note that Act 95 only affects Powers of Attorney executed after December 31, 2014. Financial Powers of Attorney executed prior to January 1, 2015, if validly drafted and executed, remain effective and need not be revised.
Execution. All Powers of Attorney must be signed by the Principal, but may be signed by another individual on the Principal’s behalf only if the Principal is not able to sign and directs the other individual to sign. The Principal’s signature or mark must be acknowledged before a Notary Public or other individual authorized to take acknowledgments. This requirement does not apply to POAs that exclusively authorize the Agent to make health care or mental health decisions for the Principal. In addition, the (financial) POA must be witnessed by two individuals, neither of whom may be the Agent, the individual who signed at the direction of the Principal, or the Notary Public. Prior law required the two witnesses (and the Notary) only in the case of a POA signed by “mark” or signed by another at the direction of the Principal.
The Notice at the beginning of the POA that the Principal is required by law to sign in order for the POA to be valid, has been modified to include language warning the Principal that the POA may grant the Agent the right to sell or otherwise dispose of the Principal’s real or personal property without advance notice to, or approval by, the Principal, and that the POA may allow the Agent to change how the Principal’s property is disposed of at death. The Principal is advised to seek the advice of an attorney before signing the POA.
The Acknowledgment form at the end of the POA that the Agent must sign is also revised. It now states that the Agent must act in accordance with the Principal’s reasonable expectations to the extent that the Agent actually knows them, and, otherwise, in the Principal’s best interest. The new acknowledgment also states that the Agent must act in good faith and within the scope of the authority granted in the POA.
Hot Powers. The new law prohibits the Agent from taking certain actions unless authority is specifically granted in the POA. These “hot powers” include the rights to do the following:
1. Create, amend, revoke or terminate an inter vivos trust unless specifically permitted under the language that permits the Agent to “create a trust for my benefit” or “make additions to an existing trust for my benefit”.
2. Make a gift or gifts.
3. Create or change rights of survivorship in financial accounts or real property.
4. Create or change a beneficiary designation.
5. Delegate authority granted under the POA.
6. Waive the Principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan.
7. Exercise fiduciary powers that the Principal has authority to delegate.
8. Disclaim property, including a Power of Appointment.
Gifts. The new law permits an Agent to make gifts only under certain
circumstances and only to a certain extent unless specifically provided otherwise. Unless the POA provides otherwise, the phrase “to make limited gifts” or other language granting general authority to make gifts means (i) annual exclusion gifts and gift splitting, (ii) consistent with the Principal’s objectives if known, and if not known, consistent with the Principal’s best interests based on all factors, including the value of the Principal’s estate; the Principal’s foreseeable needs; tax savings; eligibility for government benefits; and history of making gifts.
Elder law planning. It is clear that in order to allow the Agent to engage in elder law planning, including the creation of supplemental needs trusts, qualified income trusts in order to qualify the Principal for Medicaid benefits, arrange for the diversion of the Principal’s income to such a trust in order to qualify the Principal for Medicaid benefits, and engage in estate and long-term care planning in furtherance of achieving asset preservation, including the making of substantial gifts to a Medicaid Asset Protection Trust, there must be very specific authorizations granted in the POA.
This article is only an overview and does not address many of the provisions of the new law. The new POA law is very complex and far-reaching, and makes the preparation of an appropriate Power of Attorney a much more complex exercise than before. If we can be of assistance in connection with your or your loved one’s planning, please do not hesitate to contact us.
This article is not legal advice and is provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction.
