House Bill 1429, which makes a number of changes to the form and effect of powers of attorney, was signed by Governor Corbett on July 2, becoming Act 95 of 2014.
Among the more important changes made by Act 95 are the following:
- Powers of attorney executed on or after January 1, 2015, must be both witnessed and notarized.
- The language of the notice to the principal, and the acknowledgement of the agent, have both been revised.
- The liability of third parties relying in good faith on powers of attorney has been limited in order to reverse the reasoning of the Supreme Court in Teresa M. Vine v. Commonwealth of Pennsylvania, State Employees’ Retirement Board, 607 Pa. 648, 9 A.3d 1150 (2010), and those changes are effective immediately.
- The power of agents to make gifts has been further limited, and there are also new guidelines for other kinds of estate planning.
- The duties and liabilities of agents have been revised and restated.
This article will describe the changes that have been made in the way powers of attorney must be executed, the changes in the notice to the principal, and the changes in the acknowledgement of the agent. Later articles will address issues of third party liability, the powers of agents to make gifts and affect estate planning, the duties and liabilities of agents, and other changes made by the Act.
The primary origins of Act 95 are:
- House Resolution 484 of 2007 directed the Joint State Government Commission to have its Advisory Committee on Decedents’ Estates Laws (the “Advisory Committee”) study the Uniform Power of Attorney Act, which had been approved by the National Conference of Commissioners on Uniform State Laws in 2006, to determine whether to recommend amendments to Pennsylvania’s statutes on powers of attorney.
- The Advisory Committee on Decedents’ Estates Law released its report on powers of attorney in March of 2010 (the “Report”), and proposed a number of amendments to Chapter 56 of the Probate Estates and Fiduciaries Code (“Powers of Attorney”), as well as Chapter 54 (“Health Care Powers of Attorney”).
- In May of 2010, the Supreme Court decided Teresa M. Vine v. Commonwealth of Pennsylvania, State Employees’ Retirement Board, 607 Pa. 648, 9 A.3d 1150 (2010), which held that a third party could be liable for relying on a power of attorney and acting on the directions of the agent if the power of attorney was void due to the incapacity of the principal at the time the power was executed.
Although Act 95 seems to have adequately addressed the concerns raised by the Vine decision, it departed in several respects from the recommendations of the Advisory Committee, and some of those departures could have unfortunate consequences, either in results that were not intended or in judicial confusion.
Execution of Powers
Generally speaking, prior law only required that powers of attorney be signed and dated by the principal. No witnesses were needed unless execution was by mark, or by another person at the request of the principal. Notarization was not needed unless the power of attorney needed to be recorded (which would be necessary to convey an interest in real property).
Under new section 5601(b)(3) (unless otherwise noted, all section references are to the Probate, Estates and Fiduciaries Code, Title 20 of the Pennsylvania Consolidated Statutes), all powers executed on or after January 1, 2015, must be acknowledged before a notary public (or other individual authorized by law to take acknowledgements) and witnessed by two individuals, each of whom is 18 years of age or older. No particular language is specified for the acknowledgement or witnessing, but presumably language similar to that currently used in wills (or health care powers of attorney) will be sufficient.
The requirement of two witnesses in all cases was recommended by the Advisory Committee, and its report indicates that the change was partly to conform the execution of powers of attorney under Chapter 56 with the execution of health care powers of attorney under Chapter 54 (which requires two witnesses), but also to be “more protective of the principal (i.e., it lessens the possibility of undue influence and duress).” (Report, page 18.)
The Advisory Committee also recommended “the inclusion of a comment stating that notarization of a power of attorney at its execution is good practice but is not required.” (Report, page 18.) That recommendation was not followed by the legislature, and Act 95 requires notarization.
It might seem incongruous that Pennsylvania law now requires two subscribing witnesses to a power of attorney, but does not require subscribing witnesses to a will, but a will is subject to a quasi-judicial review by the Register of Wills before it is admitted to probate and becomes effective, while a power of attorney is expected to be effective without any judicial or other governmental review. It therefore seems appropriate to require a greater level of self-authentication to a power of attorney.
Some other changes (and comments):
- Section 5601(b) originally provided that powers of attorney “shall be signed and dated by the principal….” Section 5601(b)(1) now provides that a power “shall be dated, and shall be signed by the principal….” This presumably means that the date does not need to be written by the principal, but can be written (or typed) by the lawyer or a witness.
- A power of attorney may be signed by another individual on behalf of the principal “if the principal is unable to sign but specifically directs another individual to sign the power of attorney.” The requirement that the principal be unable to sign the power of attorney is new, and might seem to do nothing more than make explicit what was implicit, but it provides a new issue that can be litigated in the future. It’s also not clear what difference it makes whether the signature is at the “direction” of the principal (which was previously required) or that the principal “specifically directs” the other person to sign for the principal.
- The requirement that that all powers be witnessed pretty much eliminates the distinction between execution by signature and execution by mark, which is probably just as well considering the number of signatures that are illegible (and therefore might not be considered a “signature”).
- The statute is now clear that the notary cannot be the agent (§ 5601(b)(3)(i)), and that the witnesses cannot be the notary or the agent (§ 5601(b)(3)(ii)).
The prohibition against the agent being a subscribing witness is going to change the practices of many lawyers who have allowed spouses to witness each other’s wills, so only one additional witness was needed. This has been a common practice even when the spouse is a primary beneficiary of the estate, or is the executor named in the will, because Pennsylvania law does not disqualify interested parties from being witnesses to a will. However, when spouses name each other as agents in their powers of attorney (which is very common, of course), the spouses will not be able to be witnesses to the powers of attorney, and a second witness will be needed.
The prohibition against the same person serving as both the notary and the witness may create problems or concerns for those practitioners who have been taking acknowledgements of powers of attorney using the form of certification found at 21 P.S. § 291.7(5). 42 Pa.C.S. § 327(a) allows an acknowledgement to be taken by a member of the bar of the Supreme Court of Pennsylvania if the document is afterwards certified to an officer authorized to administer oaths, and the form of certification is provided by 57 Pa.C.S. § 316(2.1) (which is the successor to 21 P.S. § 291.7(5), which has been repealed). However, both 57 Pa.C.S. § 316(2.1) and 21 P.S. § 291.7(5) state that the attorney is acknowledging being a “subscribing witness” to the document. It would seem that, for purposes of § 5601(b)(3)(ii), a lawyer taking an acknowledgement of the principal would be an “other person authorized by law to take acknowledgements” and so could not be a subscribing witness, and yet the form of certification specified by 57 Pa.C.S. § 316(2.1) requires the lawyer to be a subscribing witness. The intent of § 5601(b)(3)(ii) seems to be that there should be at least three independent people involved with the execution of a power of attorney: two witnesses and a person taking the acknowledgement of the principal, and that intent would be violated by having a lawyer both sign as a witness and take the acknowledgement of the principal.
Absent any authoritative guidance (and who would provide such guidance?), the safest approach would be to have three subscribing witnesses: the lawyer and two others. The presence of a third witness should not invalidate the power of attorney, and the lawyer can then go to a notary public and have the acknowledgement certified in accordance with 57 Pa.C.S. § 316(2.1).
Notice to Principal
The notice that is “required” to be included in capital letters at the beginning of the power of attorney is not necessary for the validity of the document, but does change the burden of proof on challenges to the authority of the agent. Act 95 makes the following changes to the language of the notice:
- The statement that your agent “must keep your funds separate from your agent’s funds” has been deleted. A similar change has been made to the acknowledgement of the agent (see below), and the reasons for those changes is not clear, because they were not recommended by the Advisory Committee.
- Two new statements are now included:
Your agent must act in accordance with your reasonable expectations to the extent actually known by your agent and, otherwise, in your best interest, act in good faith and act only within the scope of authority granted by you in the power of attorney.
The law permits you, if you choose, to grant broad authority to an agent under power of attorney, including the ability to give away all of your property while you are alive or to substantially change how your property is distributed at your death. Before signing this document, you should seek the advice of an attorney at law to make sure you understand it.
The first new statement seems like an improvement, because it informs the principal about the fiduciary duties of the agent and the limits on the powers of the agent. The reference to “reasonable expectations” might also prompt the principal to explicitly communicate his or her expectations to the agent, which would seem to be a good thing.
The second new statement is also an improvement, because it highlights the possibility that the power of attorney might give agents broad powers to make gifts or change beneficiary designations. However, it would have been even better to require a notice of the powers actually given by the document, rather than a notice of powers that might have been given.
The last sentence, about seeking the advice a lawyer, is the sort of thing that lawyers like to see, but could cause confusion when the document has been prepared by (and recommended by) the principal’s own lawyer.
Acknowledgement of Agent
Under section 5601(d), both before and after the amendments made by Act 95, an agent is required to sign a form of acknowledgement before acting as an agent under a power of attorney. Act 95 makes several changes to the content of the acknowledgement:
- The statement that “I shall exercise the powers for the benefit of the principal” has been replaced by a more expanded and explicit summary of the duties of an agent:
I shall act in accordance with the principal’s reasonable expectations to the extent actually known by me and, otherwise, in the principal’s best interest, act in good faith and act only within the scope of authority granted to me by the principal in the power of attorney.
- The three other statements, about keeping the assets of the principal separate
from the agent’s assets, exercising reasonable caution and prudence, and keeping records of all
actions, receipts and disbursements on behalf of the principal, have all been deleted.
- Part of an introductory statement, that the acknowledgements apply “in the absence of a specific provision to the contrary in the power of attorney or in 20 Pa.C.S.,” has been deleted.
These changes were not recommended by the Advisory Committee, and they appear to be an attempt to coordinate the language of the acknowledgement with the language of the new section 5601.3, which describes the duties of the agent (and was also not recommended by the Advisory Committee).
New section 5601.3 divides the duties of the agent into two categories: Those listed in section 5601.3(a) cannot be waived or modified by the provisions of the power of attorney, but those listed in section 5601.3(b) are conditioned by “[e]xcept as otherwise provided in the power of attorney.” The duties listed in 5601.3(a) are the same duties described in the new language quoted above (“act in accordance with the principal’s reasonable expectations,” etc.), and the duties listed in 5601.3(b) include the duties that have been deleted from the acknowledgement. So the acknowledgement of the agent has been changed by deleting any reference to possible exceptions, listing only those duties that cannot be waived or modified, and deleting references to duties that might be waived or modified by the document.
Regardless of whether or not the changes represented by new section 5601.3 are an improvement (and there will be commentary on that later), the decision of the legislature not to require agents to acknowledge any of the duties listed in subsection (b) is puzzling.
(This is the first in a series of articles. Part II will address changes affecting the liability of third parties.)