Effective March 22, 2012 Ohio’s Sub Senate Bill 117 will bring major changes to the law governing financial powers of attorney. The new statutory form is intended to create uniformity and certainty in the way powers of attorney are construed and to provide certain protections to those who create the documents.
A power of attorney is a document in which one person (the Principal) names another person (the Agent) to act on his behalf in handling financial transactions. The basic form provides for identification of the parties (including successor agents) and spaces to initial next to specific powers given to the agent or to give all general powers.
Set off from the general powers are the so called “hot powers”. Because these acts pose risks of diminishing the principal’s property or changing his estate plan, they require an express, specific grant of authority. The “hot powers” include:
- The power to create, amend, revoke, or terminate living trusts (provided the trust is subject to amendment by the agent)
- The power to make gifts within certain limits
- The power to create or change rights of survivorship or beneficiary designations
- The power to delegate authority to someone else
- The power to waive the principal’s right to be a beneficiary of certain annuities or retirement plans
- The power to exercise any fiduciary powers that the principal could delegate
The agents’ powers can be expanded even further if the principal gives special instructions above and beyond simply initialing general grants or hot powers. For example, he can allow gifts of any size for Medicaid planning, tax planning or exonerate an agent from liability for breaching his duties.
Special instructions can also be used to name a co-agent and to broaden or limit any of the default presumptions provided in the statute.
Certain presumptions will apply unless the principal states otherwise.
- The poa is presumed to be durable – that is, the agent can continue to act even after the principal is incapacitated
- The poa is effective immediately
- The signature is assumed to be genuine if properly notarized
- Photocopies and electrically transmitted copies have the same validity as the original
- The agent accepts his appointment when he begins acting
- The agent is entitled to reasonable compensation
- The agent is authorized to look at medical records, but not to make medical decisions
- If more than one agent is named, each may act independently
- Successor agents have the same power as the first agent
- One agent is not liable for the acts of another agent
The poa will continue until the principal or agent dies unless it is revoked by the principal, terminated by a court, the agent resigns or becomes incapacitated, or (in the case of a spouse as agent) an action for divorce or annulment is filed. The agent must have actual knowledge of the terminating event.
Duties of the Agent
The new law imposes four mandatory duties on agents:
- They must act in good faith.
- They must act only within the scope of authority given to them by the principal.
- They must act according to the principal’s reasonable expectation, if known, and if not known, in the best interest of the principal.
- They must attempt to preserve the principal’s estate plan unless it is not in his best interests.
In addition, an agent must act loyally, avoid conflicts of interest, act with care, competence and diligence, keep records and cooperate with health care agents unless other written directions are given in the document.
Judicial Relief and Oversight
Because of the ease with which powers of attorney are drafted and the broad powers that can be given, financial powers of attorney are frequently abused to take advantage of vulnerable seniors or others with limited capacity. Ohio’s new law addresses these issues by granting interested individuals the right to challenge the agent and require him to account for his actions before the court.
Agents concerned about the extent of their duties and liabilities may also petition the court to construe the meaning of the poa.
The following people are authorized to bring matters before the court:
- The principal or agent
- A guardian, conservator or executor (if the principal is deceased)
- The principal’s spouse, parent or descendent
- An adult sibling, niece or nephew
- A beneficiary of the principal’s estate plan
- Adult Protective Services
- The principal’s caregiver or another person with sufficient interest in his welfare
- A person who has been asked to accept his power of attorney
- Anyone who can petition the estate administrator to petition for an accounting
If an agent is found to have violated his duties, he must restore the principal’s property and reimburse for attorney fees and costs. He may also be subject to civil or criminal liability for financial abuse.
Even though the statutory “form” will be readily available, it is important to have an attorney’s assistance in customizing the document to meet your specific needs and wishes. Agents may also wish to have an attorney’s help in understanding and fulfilling the responsibilities given.