Take-Away: There is a fairly good change that Michigan will soon adopt new power of attorney laws that are intended to better protect older principals from financial abuse and curb the knee-jerk requirement of many banks or other financial institutions that demand fresh powers of attorney signed by the principal, often on the financial institution’s form.

Background: Michigan is currently considering the adoption of the Uniform Power of Attorney Act.  [Senate Bill 1148.] About 28 states have adopted this Uniform Act, and 3 other states are presently looking into its adoption. If adopted in Michigan, the Act would replace the current Michigan power of attorney law found at MCL 700.5505, which is part of the Estates and Protected Individuals Code (EPIC.) Key changes, if the Act is adopted in Michigan, would be to add flexibility to assure the acceptance of the agent’s authority under the power of attorney, and to provide safeguards for the protection of an incapacitated principal through a set of default rules that preserve the principal’s freedom to choose the desired powers that are delegated to the agent. The Senate Bill would not invalidate existing power of attorney that were executed prior to the Act’s enactment, so long as the power of attorney was executed consistent with Michigan’s formal  execution requirements. Key features of the Act are summarized:

Durable: All powers of attorney are automatically durable unless otherwise stated in the instrument. This default rule is the opposite of Michigan’s current law. Incapacity is defined to mean the inability of an individual (the principal) to manage property or business affairs for either of the following two reasons: (i) an individual’s impairment in the ability to receive and evaluate information or to make or communicate decisions even with the use of technological assistance; or (ii) the individual is either missing, detained, incarcerated; or outside the U.S. and unable to return. Since a power of attorney is automatically deemed under the Act to be durable, there will be a need to explain this change to the principal to make sure that he/she understands the risks that are associated with giving an agent a durable power of attorney.

Execution: For a nondurable power of attorney, only the principal has to sign the document. For a durable power of attorney more conditions need to be satisfied. For example, the nominated agent cannot serve as a witness. A durable power of attorney must be acknowledged by the principal before a notary or other persons who are authorized to take acknowledgements, and it must be signed in the presence of 2 witnesses, both of whom must sign the power of attorney, but one witness may also act as the subscribing notary. In addition, a durable power can be signed in the principal’s presence by another individual who is directed by the principal to sign the principal’s name on the power of attorney.

Copies: A photocopy or electronically transmitted copy of an original power of attorney has the same effect as the original instrument. Consequently, third parties can rely on physical or digital copies of the original durable power of attorney.

Agent Duties: The Act imposes affirmative duties on the agent that cannot be waived by the principal. Those non-waivable duties include: (i) the duty to act in accordance with reasonable expectations of the principal that are known to the agent, and to the extent such expectations are not actually known, to act in the principal’s best interests; (ii) to act in good faith, or with ‘honesty in fact;’ (iii) to act only within the scope of the authority granted by the principal to the agent; and (iv) to keep reasonable records of receipts, disbursements, and transactions made by the agent acting on the principal’s behalf.

Agent Liabilities: If an agent violates the Act, he/she is liable to the principal, or to the principal’s successors in interest, for the amount that is required to restore the value of the principal’s property to what it would have been had the violation not occurred, including reimbursement of attorney’s fees and costs paid on the principal’s behalf to address the defense of the conduct that constitutes or contributes to the violation. If the agent embezzles or wrongfully converts the principal’s property, the agent is liable in an legal proceeding that is brought by the principal, or the principal’s successors in interest, for treble the value of any property that was embezzled, converted or wrongfully withheld from the principal or his/her successor’s in interest. These remedies are not exclusive. However, the terms of the power of attorney can expressly exonerate the agent from breach of duty, with a couple of limited exceptions.

Disclosures: The Act specifies to whom the agent is accountable. Unless the power of attorney provides otherwise, an agent is not required to disclose receipts, disbursements, or transactions conducted on the principal’s behalf unless: (i) ordered by a court; (ii) requested by the principal; (iii) requested by a guardian, conservator, or another fiduciary that acts on behalf of the principal; (iv) requested by a governmental agency that has the authority to protect the principal’s welfare; and (v) requested by the Personal Representative, or successor in interest, of the principal’s estate after his/her death.

Acknowledged Powers: An acknowledged instrument means one that has been verified before a notary. One benefit from an acknowledgement is the legal presumption that the instrument contains a genuine signature. With an acknowledged instrument, a third party may accept the power of attorney in good faith and may presume that the principal’s signature is genuine, so long as the third party does not have actual knowledge that indicates the signature is not genuine. Consequently, a third party that is presented with an acknowledged power of attorney may rely, without further investigation, upon it, or that third party may request  any of the following: (i) a certification under penalty of perjury by an agent or lawyer who represents either the agent or the principal of any factual matter that concerns the principal, agent, or power of attorney; (ii) an opinion of counsel as to any matter of law that concerns the power of attorney if the person who requests the opinion explains the reason for the request in a record; or (iii) an English translation of the power of attorney if it contains language other than English and the translation’s accuracy is the subject of either a certification of opinion counsel. The Act goes further to discourage a third party (that’s you, banks and brokerage firms) from needlessly asking for an opinion of counsel that relates to an acknowledged power of attorney when the circumstances do not support such a request. If a court later finds that the reason for the request as stated in the required record is frivolous, the third person who makes the request is subject to liability for attorney’s fees and costs incurred in providing the requested opinion. This rule is extended to existing, but unacknowledged, powers of attorney; it is intended to prevent third parties from categorically refusing to accept a power of attorney that is valid, but was not notarized prior to the principal’s incapacity. In sum, an acknowledged power of attorney should be more readily acceptable by third parties because of the legal presumption of validity that is associated with it.

Penalties: The Act penalizes a person who refuses to accept an acknowledged power of attorney. Yet those same penalties will not apply to other durable powers of attorney or nondurable powers that are not acknowledged. Generally, a third party is required to accept an acknowledged power of attorney, unless that third party requests a certification, translation, or opinion of counsel within 7 business days of the power’s presentment; otherwise, the third party must accept the power of attorney. After the third party has been furnished with the requested certification, translation, or opinion of counsel, it must accept the power of attorney within the 5 following business days. If a third party wrongfully refuses to accept an acknowledged power of attorney, he/she/it is subject to a court order that mandates acceptance of the power and an order to pay reasonable attorney’s fees and costs incurred in any legal proceeding that confirms the validity of the power or which mandates acceptance of the power of attorney.

Protected Third Parties: There are some situations where the Act authorizes a third party to deny acceptance of an invalid power of attorney. Those enumerated situations include: (i)  the third person is not required to engage in a transaction with the principal in the same circumstances; (ii) the third person engaging in a transaction with the agent or principal in the same circumstances would be inconsistent with federal law or regulations; (iii) the third person has actual knowledge of the termination of the agent’s authority or of the power of attorney before its exercise; (iv) the third person’s timely request for a certification, translation, or opinion of counsel is refused; (v) the third person in good faith believes that the power of attorney is not valid or that the agent does not possess the authority to perform the act requested; (vi) the third   person in good faith makes or has actual knowledge that another person has made a report to adult protective services stating a belief that the principal may be subject to physical or financial abuse, neglect, exploitation, or abandonment by the agent or a person acting for or with the agent; and (vii) the third person is a ‘financial institution’ within the meaning of the financial exploitation prevention act and the person is delaying or placing a freeze on transactions or assets relative to the principal.

Explicit Grants of Authority: Under the Act, several categories of powers or authority must be explicated granted within the terms of the power of attorney instrument in order for the agent to act based upon that express authority. The grant of these special powers to the agent are intended to deal with the inherent risks posed to the principal’s assets and existing estate plan. Those powers which must be expressly granted in the power of attorney instrument include the authority to: (i) Create, amend, revoke or terminate an inter vivos trust; (ii) Make a gift; (iii) Create or change rights of survivorship; (iv) Create or change a beneficiary designation; (v) Delegate authority under the power of attorney; (vi) Waive the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan; (vii) Exercise fiduciary powers that the principal possesses the authority to delegate; (viii) Exercise authority over the content of electronic communications; and (ix) Exercise authority over any bank, securities, or other financial account in a foreign country.  Accordingly, a broad general grant of authority to an agent to ‘do all acts that I could personally do’ would not include any of these described powers.

Excluded Powers: The Act, if adopted, would not apply to: (i) powers coupled with an interest, e.g. a power of appointment; (ii) patient advocate designations [MCL 700.5506-5520]; (iii) delegation of a parent or guardian’s authority over a minor child or ward [MCL 700.5103]; (iv) a proxy or other delegation to exercise voting rights or management rights with respect to an entity; and (v) powers created on a form prescribed by a governmental agency for a governmental purpose. These exclusions are consistent with existing MCL 700.5101(7).

Conclusion: This Bill is not yet the law in Michigan. However, if it is adopted as written, the intent is that there will be fewer agents abusing the power of attorney given to them by an elder individual, and that banks and other financial institutions will stop requiring that families obtain more current, or fresh, powers of attorney, often on the bank or financial institutions favorite power of attorney form.