Well, it has happened at last.
After failed attempts in 2003 and 2004 to amend Connecticut’s Power of Attorney laws, the Connecticut legislature and governor finally signed into law a new POA law that takes effect July 1, 2016.
Connecticut’s old Power of Attorney (POA) law was enacted in 1965—that was a long, long time ago—and the last time our POA laws were amended to any significant degree were in 1990 when health care decision making was added and then again in 2006 when health care decision making was removed.
The financial world is far different now than it was in 1965 and the old law just did not keep up with the times.
Before reading on, please note that the “Principal” is the person giving someone a POA and the “agent” is the person receiving it and who is authorized by the Principal to act.
Also note that the new Act provides default provisions and that many sections of the Act start with “Unless the Power of Attorney provides otherwise….” so there is, as under old law, the ability to custom craft a POA.
The new Act provides a suggested POA form, but the form can be altered as needed and the new form also has a section where the Principal can include “Special Instructions.”
The new form also includes warnings for certain powerful provisions (such as for gifting and amending trusts) that reads:
“YOU SHOULD SEEK LEGAL ADVICE BEFORE INCLUDING THE FOLLOWING POWERS:”
Here is what I feel are the highlights:
- One problem inherent in POAs is that a POA is a private, contractual relationship between the Principal and the Agent. A third party generally is not bound to honor a POA and this has proved troublesome and frustrating to the Principal and agent in thepast.
New law: A third party, such as a financial institution, must honor a POA unless they believe in good faith that:
- the POA is revoked
- the agent has been removed, or
- the action the agent is attempting to take is outside the scope of authority granted by the POA
Good faith means “honesty in fact.” The financial institution can ask for a legal opinion or a Certification from the agent regarding the action desired. Even if the Certification or legal opinion is provided, the financial institution can refuse to take action as long as they are acting in good faith. If the agent goes to court to have the POA enforced against the financial institution and if there is a finding that the financial institution did not act in good faith, the Court may award attorneys fees to the agent for the cost of seeking enforcement.
- Another past problem with POAs was whether an agent was required to act in the Principal’s best interest and whether the agent could take actions that benefited the agent directly.
Under the new law, the agent under the POA must act in a certain manner unless the POA provided otherwise. The agent must
- act in good faith
- undertake to discern and act upon the Principal’s reasonable expectations
- act loyally and avoid conflicts of interest, and
- attempt to preserve the Principal’s estate plan, including the minimization of inheritance and gift taxes
- Under the old law, a POA expired when the Principal became incapacitated unless the POA had special language to the effect that the POA remained valid even if the Principal became mentally incapacitated. This was the default rule, but unfortunately it was backward because the time when a POA is most needed is when incapacity sets in.
New law: Now, all POAs executed in accordance with the new law are durable unless the Principal indicates otherwise—no special language is needed.
- Somewhat related to number 2 above is the issue of gifts. If a Principal were incapacitated, could the Agent make gifts? If so, to whom and in what amounts? Could they gift to themselves?
Under the new law, an Agent may make gifts, change beneficiary designations, and create or change rights of survivorship. These are very powerful provisions, but they must be exercised in a manner consistent with the agent’s authority granted in the POA. And unless the POA otherwise provides, gifts are limited to the annual gift tax exclusion (now $14,000 per person per year).
- Oftentimes the Principal in a POA, will relieve the Agent of liability for actions the Agent might take (a ”hold harmless” provision). Such a provision is usually included to encourage the Agent to accept the POA and to take actions under the POA without the fear of being sued by some disgruntled creditor or family member.
Under the new Act, the Principal may still absolve the Agent from liability, but the Agent, regardless, will remain liable to the Principal if the Agent acts improperly under the POA (act with an improper motive, reckless indifference to the Principal’s best interests, or had the “hold harmless” inserted by abusing his or her relationship with the Principal).
There is a lot here, most of it very good and necessary.
My suggestion is that anyone who has a Connecticut Power of Attorney should have it reviewed and redone using the new form. If you’d like our help, give us a call.