The following is the text of our firm’s letter to clients regarding the Florida Power of Attorney Law Effective October 1, 2011.
I apologize for the fact that this letter is so obviously a “form”, but we needed to get time-sensitive material in the hands of our clients who may have executed Powers of Attorney in connection with their Estate Planning, or who may be relying on Powers of Attorney to care for older family members at some point.
Florida has made sweeping changes to the law governing the execution, form, exercise of Powers of Attorney. The reason for the new law was to attempt to resolve questions of interpretation of created prior to October 1, 2011 and to provide a new framework with fewer issues. Unfortunately, I believe that the new law muddles the effectiveness of existing Powers of Attorney.
A Power of Attorney is one of those documents we sign and hope is never needed. However, when it is needed, it is critical that it function as intended to access accounts, transfer property, pay bills, modify your estate plan and provide for your care or the care of the person for whom you, yourself, may be the Agent. Where incapacity is an issue, there may not be an opportunity for a “do-over”. Banks and investment firms, in particular, are wary of Powers of Attorney. If they fail to honor one, and they should have, they may be sued. If they honor one, and should not have, they may be sued. We believe that this problem will be exacerbated by the fact that their personnel will be trained on what to look for in the new Powers of Attorney, and not be familiar with the format or legal import of the old Powers of Attorney.
What is a Power of Attorney?
In the Estate Planning context, a Power of Attorney is a document whereby one person (the “Principal”) appoints another person or company (the “Agent”) to act for them in certain circumstances. Although a Power of Attorney is often thought of as secondary to a Will or Revocable Trust, it can take on enormous significance.
Why an Effective Power of Attorney is Critical to Your Planning
We use Powers of Attorney to help avoid the necessity of establishing a guardianship for a person who may be incapacitated. Guardianship involves at least two attorneys, a three member examining panel and a judge. If the judge determines that a guardianship should be established (after any necessary hearings, i.e. delay and expense) there sometimes ensues a family feud over who should be the Guardian, for example, a child from a previous marriage may battle with a current spouse over the right to take care of “Dad” (and Dad’s money!). Once that is resolved, many dollars later, we begin the process of inventories, accountings and guardianship plans, all under court supervision – and it all continues until the incapacitated person ultimately passes away. The existence of a Power of Attorney (with or without a Revocable Trust) can circumvent this expensive, time-consuming and invasive legal process. They can also be effective to avoid probate, if they are used to make transfers to the Principal’s existing Revocable Trust that may not have been fully funded.
Why Was It Necessary to Change?
The Florida Legislature recognized that it was desirable to make available to the citizens of Florida a system that provides incapacitated persons the least restrictive alternative to the Guardianship process to ensure their physical health and safety, protect their rights, and manage their financial resources. Comprehensive legislation was necessary to insure that POAs continued to be an effective alternative to guardianship, while providing protection to the Principal and clear guidance to the Agent, as to the Agent’s duties and authority, and a mechanism for protection of the Agent and remedies for abuse.
Formalities of Execution
In order to be valid, a Power of Attorney executed on or after October 1, 2011, must be signed by the person giving the power (“principal”) and two (2) subscribing witnesses and be acknowledged by the principal before a Notary. However, the fact that your existing Power of Attorney was executed with these formalities, does not qualify it under the new law. Further, where an agent attempts to use an old Power of Attorney executed outside of Florida, an opinion of counsel from the other state may be required, resulting in delay and expense at an inopportune time.
Duties of Agents
An important feature of the new Power of Attorney Act is the clarity it provides with respect to the duties of the Agent. The duties are divided into two (2) categories: “mandatory” and “default”. “Mandatory duties” apply regardless of the actual language contained in the Power of Attorney. “Default duties” apply in the absence of the contrary provision. Thus a principal is free to expand, curtail, or eliminate a default duty.
A “mandatory duty” is the duty to act within the scope of the authority granted in the power and, to the extent actually known, in a manner that is not contrary to the principal’s reasonable expectations; to act in good faith and in a manner that is not contrary to the principal’s best interest; to attempt, in good faith, to preserve the principal’s estate plan; to perform personally; to keep adequate records; and to maintain an accurate and current inventory of the principal’s safe deposit box.
The “default duties” are the duty to act with care, competence, and diligence; to act loyally; to avoid conflicts; and to cooperate with healthcare providers.
For the Power of Attorney Statute to have the desired effect of avoiding guardianship and probate, the law establishes certain “super powers” that a principal can authorize his or her agent to perform, such as creating, amending, modifying, and revoking Trusts; making gifts; creating or changing right of survivorship; creating or changing beneficiary designations; and waiving of disclaiming property. In order for the “super powers” to be effective, the principal must place his or her signature or initials next to the paragraphs containing the enumeration of the agent’s authority in the Power of Attorney.
Effect of Powers of Attorney Executed in Florida before October 1, 2011
With respect to all matters, other than formality of execution, the new law applies to a Power of Attorney regardless of the date of creation. Therefore, it is important to have your existing Power of Attorney reviewed since the new Act does not recognize a blanket grant of authority such as “to do all acts that the principal could do” and contains no default authorities. There is also the ability under the new Act to make reference to certain sections for blanket authority to conduct banking transactions and for blanket authority to conduct investment transactions, which did not exist under prior law.
Compensation of Attorney-in-fact
Under the new Statute, the agent is entitled to reimbursement for expenses reasonably incurred on behalf of the principal, and “qualified agents” are also entitled to compensation that is reasonable under the circumstances. “Qualified Agents” include financial institutions, an attorney, certified public accountant licensed in Florida, the principal’s spouse or heir, and other natural persons provided that they are residents of the State of Florida and not in the business of serving as an agent.
Authority to Act
Unless a Power of Attorney was a “springing power” it was effective as soon as it was signed. Going forward, new springing powers will not be permitted in Florida. A “springing power” is a type of Power of Attorney that only becomes effective upon the happening of some future event, for example, the incapacity of the Principal. The problem with this form of power is that it requires a third party to determine whether the Principal is incapacitated. From the third party’s perspective, it is easy to see why they require some legal assurance of the existence of incapacity. Unfortunately, that can put everyone back in the position of having a judicial determination on the issue of incapacity, and the resulting delay and expense. The form of Power of Attorney most often used by our office was not a springing power, and that means that it was effective immediately. The new law provides that copies are as effective as originals, unless the Power of Attorney provides otherwise. Thus, it is extremely important that you control copies of your Power of Attorney as well as the original. Another safeguard will be to specifically provide in the Power of Attorney that an original of the Power of Attorney will be required for any act.
We are hoping that the new law will bring clarity to the use of Powers of Attorney as an effective tool for our clients’ planning. That will be good for everyone, however, that may mean execution of new Powers of Attorney following the new format.
We are encouraging all of clients to have new Powers of Attorney drawn to minimize the possibility of delays being incurred (or outright rejection) when the Agent seeks to exercise the authority given in the Power.