CAN AGENT UNDER DURABLE POWER OF ATTORNEY WRITE A LAST WILL FOR A PRINCIPAL? HOW ABOUT ONLY REVISE AN ESTATE PLAN? THE ANSWERS MAY SURPRISE YOU.
This article appeared in both the Winter 2011-2012 Philadelphia Estate Planning Council Newsletter and the 2012 Pennsylvania Bar Real Property, Probate and Trust Law Newsletter.
A new client, Jane, walks in your door and tells you her husband, Dick, who while alive appointed her as his Agent under a Durable Power of Attorney document, died leaving a Last Will. Jane shows you the Will and it is signed “Jane, agent for Dick”, with Dick’s name on the signature line handwritten thereon by Jane. What’s your first reaction?
Do you ask to see the Power of Attorney document? Do you ask whether Dick was incapable of signing the Will on his own, hoping that you might be able to rely on 20 Pa.C.S.A. §2502(3) to have it accepted for probate by the Register of Wills, with an explanation that what appears to be offending language (“agent for Dick”) is nothing more than a description of the position Jane was accorded as a matter of statutory construction when she signed Dick’s name to the Will. Or do you simply say, as did recently a Judge of the Orphans’ Court Division of the Montgomery County Court of Common Pleas (herein the “Trial Court”), without even examining the contents of the POA document, that “an agent under a power of attorney does not have the power to execute a testamentary document on behalf of his or her principal.” In fact, would you be inclined to go one step further, as did the Judge, and say: “This concept is axiomatic – so much so that we can find and were cited to no Pennsylvania cases that spell it out, although numerous legal treatises, commentaries and internet blogs and commentaries (sic) affirm it.”
It is respectfully suggested that far from it being “axiomatic’, this concept enunciated by the Trial Court may, in fact, be just the opposite. That is, it appears to be, instead, a plain misstatement of the law under Pennsylvania’s version of the Uniform Durable Power of Attorney Act, 20 Pa.C.S.A. §5601, et seq. (herein the “Act”).
For starters, inasmuch as the Court appeared to have a penchant for commentaries, here’s at least one commentary that disaffirms it. In a Faculty Article published in the William Mitchell Law Review by Robert McLeod, titled “What are the Limitations to an Attorney-in-Fact’s Powers to Gift and Change a Dispositive (Estate) Plan”, 27 Wm. Mitchell L. Rev. 1143 (2000), in Part V, Paragraph A, he writes: “I have not found any real authority that limits a principal’s ability to delegate the power to create a Will...” Id. at 1152. This particular statement is footnoted in the Article, and reference is made to the Restatement (Second) of Property: Donative Transfers 34.5 (1990), cmt. on subsection 3. Mr. McLeod notes here that “The comments [in the Restatement] provide no substantive support for the proposition that a person cannot delegate the power to make a Will.”
Case of First Impression
It is not clear whether the Trial Court’s reference in its Memorandum Opinion to a “testamentary document” was intended to mean, specifically, a Last Will and Testament, or generically, any document that serves the same purpose of a Last Will. The term “testamentary document” is not defined in the PEF Code. Black’s Law Dictionary also doesn’t define the term, although it does include another that is very close, to wit: “testamentary paper or instrument”. That definition reads as follows: “An instrument in the nature of a will; an unprobated will; a paper writing which is of the character of a will, though not formally such, and, if allowed as a testament, will have the effect of a will upon the devolution and distribution of property.” Fifth Edition (1979). Regardless of the Trial Court’s intended use of the term “testamentary document”, the axiom is arguably wrong on both accounts; i.e, generically and as to a Last Will specifically.[1]Interpretation of the Act. The issue of the full breadth and depth of an agent’s authority under a power of attorney document, while not specifically answered by any Pennsylvania court heretofore, has nonetheless been addressed and analyzed in a good number of cases decided in this Commonwealth, including the Supreme Court. In the case In re Estate of Reifsneider, 531 Pa. 19; 610 A.2d 958 (1992), the Supreme Court granted allocator to examine a case of first impression regarding the interpretation of the power of attorney act under the prior version of the Act, Act 1982-26. Included in the opinion is a brief history of the law regarding powers of attorney, starting with the common law of agency. At issue in the Reifsneider case was whether a principal wishing to grant one of the powers referred to in section 5602(a) [specifically the claiming of an elective share of the estate of the principal’s deceased spouse] must explicitly identify the power using specific language either identical or similar to the statutory language. Id. at 24. The Supreme Court, in reversing the Superior Court, held in the negative. And in doing so, the Court relied in good measure on the language of Section 5601 of the Act, which reads as follows:
In addition to all other powers that may be delegated to an attorney-in-fact[2], any or all of the powers referred to in section 5602(a) (relating to form of power of attorney) may lawfully be granted in writing and, unless the power of attorney expressly directs to the contrary, shall be construed in accordance with the provisions of this chapter (emphasis added).
The Court went on to elaborate as follows:
On its face, the language of this statute does not suggest that its provisions are to be restrictive or exclusive. Indeed the statute contains several phrases supporting the contrary view [citing section 5601]…From this we conclude that the statute does not limit the subjects that may properly be addressed by powers of attorney, nor does it confine the way such powers may be defined…we do not think it necessary for the legislature to alter the law when it chooses to enter a field theretofore occupied by common law...the statute can be given meaningful application without resorting to the restrictive application of the court below. Id. at 25-26.
This expansive reading of the Act was reaffirmed in a number of similar cases that followed Reifsneider, including In re: Marjorie H. Weidner, 595 Pa. 263; 938 A.2d 354 (2007) [agent found to have authority to change beneficiary of life insurance policy without specific language in the Power of Attorney document]; In the Matter of: Earl R. Mosteller, 719 A.2d 1067 (Pa.Super.1998) [agent found to have authority to revoke a trust without specific language in the Power of Attorney document]; and Taylor v. Vernon, 652 A.2d 912 (Pa.Super.1995) [agent found to have authority make gifts under language giving agent power to convey land together with general language granting agent power to perform any act principal might do if personally present]. Thus, regardless [almost] of what a power of document actually says, the “axiom” that “…an agent under a power of attorney does not have the power to execute a testamentary document on behalf of his or her principal” is, on its face, in direct contravention of the holdings espoused by our Supreme Court and Superior Court, in no less than four cases, concerning the parameters of the Act. Quite simply, there is absolutely nothing in the Act that prohibits a principal from granting his agent the power to execute a testamentary document. Accordingly, with statutory language that reads: “In addition to all other powers that may be delegated to an agent…”, absent a specific prohibition in the Act, itself, section 5601 must be read to mean that such a power may be delegated by a principal to his agent.
Altering a Principal’s Estate Plan
If it is really true that a principal can delegate to his agent the power to sign his Will, doesn’t this give the agent the power to alter his or her principal’s estate plan? Exactly. But this is already the state of the law in Pennsylvania. Accepting for the moment the applicability of the Black’s Law Dictionary definition of “testamentary paper or instrument” cited above; i.e., “a[ny] paper writing which …will have the effect of a will upon the devolution and distribution of property”, there are at least three other “paper writings” that have this effect: (i) an intervivos revocable trust, sometimes referred to as a “living trust” or (not coincidentally) a “will substitute”; (ii) the beneficiary designation of a life insurance policy; and (iii) the beneficiary designation of a retirement plan[3]. And, in fact, all three said “testamentary documents” are specifically included in the Act over which a principal may delegate to his agent the power to act.[4] One may be quick to jump up and point out that, at least with respect to the creation of trusts, the statute requires that the trust solely benefit the principal during his lifetime and that the remainder of the trust shall be distributed to the deceased principal’s estate. 20 Pa.C.S.A. §5603(b)(1); and that this provision serves as an implicit prohibition against making any dispositions that would alter the principal’s existing estate plan. Nothing could be further from the truth.
Subsection 5603(c) provides that an agent can make additions to any trust in existence when the power was created, provided the terms of the trust relating to the disposition of income and corpus during the lifetime of the principal are the same as set forth in subsection (b). But there is no requirement in subsection (c) that the remaining corpus of the trust be distributed to the principal’s estate. Subsection 5603(g) provides that an agent has the power to withdraw and receive the income or corpus of any trust over which the principal has the power to make withdrawals.
Now take the very typical estate plan that includes a living trust in lieu of a Last Will, which is revocable by the grantor during his lifetime, under which the grantor can withdraw any income or corpus that he desires during his lifetime, and upon the death of the grantor the remaining corpus is left to the beneficiaries identified in the trust agreement. Those residuary beneficiaries under the living trust can, but do not necessarily have to be the same beneficiaries that are identified in the grantor’s Last Will, assuming he has one; and those residuary beneficiaries under the living trust can, but do not necessarily have to be the same beneficiaries that would otherwise take as intestate heirs if the grantor left no Will.
This common form of living trust falls within the description of the trust contemplated by both subsections (c) and (g) of section 5603. If an agent exercises either one of these powers, by adding assets to such a trust or withdrawing assets from such a trust, the ultimate beneficiaries of those assets either contributed to, or removed from the trust might be different than if the power were not exercised. And if the agent does so, he surely will have “altered the principal’s existing estate plan”. The following conclusions, therefore, are irrefutable. First, there is no implicit prohibition under the Act as concerns altering a principal’s estate plan. Second, and more importantly, this is further proof that the “axiom” set forth in the Trial Court’s Memorandum Opinion must be wrong as a matter of law.
The same analysis holds true in connection with the power of an agent to designate the beneficiary of a life insurance policy and a retirement plan asset. The only limitation in either of these subsections of the Act is that the agent cannot name himself as beneficiary of a life insurance policy, with an exception to the exception if the agent is the spouse, child, grandchild, parent, brother or sister of the principal. 20 Pa.C.S.A. §5603(p)(3). No one can seriously argue that the power to change the beneficiary of a principal’s insurance policy or retirement plan is not the power to alter an estate plan. Thus, again, for the Trial Court to have said or implied otherwise, its Order was premised on a clear error of law.
Fraud and Abuse Potential
Your author will not disagree with the proposition that a principal having the right to delegate to his agent the authority to execute a testamentary document may be a radical idea whose time has not yet come. Nor do I doubt the hue and cry that will inevitably ensue from even suggesting it from those who would stand on their soap box and sermonize about the evils of fraud and abuse and how unsuspecting principals will be fleeced by their scoundrel agents should such a proposition be true. But, in reality, the potential for fraud and abuse is already the state of the world for all Pennsylvanians living with the current version of Chapter 56 of our PEF Code, and the case law is replete with the horror stories. The statute says what it says. “In addition to all other powers that may be delegated to an agent…” Section 5601. The Supreme Court has interpreted the legislative intent of same by saying “the language of this statute does not suggest that its provisions are to be restrictive or exclusive”. Reifsneider. 531 Pa. at 25. The Superior Court followed suit in Mosteller, supra, and Taylor v. Vernon, supra.
The case from which the hypothetical facts set forth above presened the perfect opportunity for the Superior Court to formulate a cogent opinion on way or another about the parameters of the Act, and in particular the narrow application of same concerning the execution of a testamentary document by an agent for his or her principal (whether or not the principal is disabled, as were the facts in the real case). But the Superior Court ducked the issue. So, all we have on the issue is an Orphans’ Court opinion that says a principal cannot, which it declared to be “axiomatic”, yet acknowledging that said declaration was without a scintilla of legal support that is worthy of serious jurisprudence. Should it matter if the facts of our hypothetical case are that Jane, on her own, and without the consent of Dick, had the Will prepared and executed it without his knowledge. Or do we feel better if Jane only executed a testamentary document that Dick, himself, directed be prepared on his behalf, the document was then prepared by Dick’s own counsel, the contents of which he read and understood, and then, because he was physically unable to do so on his own, directed Jane to sign on his behalf, which she did in his presence, and at his direction, with his openly declaring that the Will was his own expression of testamentary intent, all of which was subscribed to by witnesses and a notary pubic.
If it were only the potential for fraud and abuse that drove the Trial Court to formulate its “axiom”, we can applaud its concern. But it is not the Trial Court’s (nor any Court’s) job to protect the public. The job of our Commonwealth’s judicial system is to interpret the laws enacted by our General Assembly. And, in fact, since the General Assembly first passed the Act in 1982, in response to a variety of warnings over potential abuse, the Act has been amended by our legislature only four times, two of which had nothing to do with protecting the innocent.
Recent History of the Act
The most significant revision took place in 1999, when the right of a principal to authorize an agent to make “unlimited” gifts was (not eliminated from the Act), but only deleted from §5602(a) and moved into the all new §5601.2. Act 1999-39 (S.B. 173), P.L. 422, § 9. [5] Today, if a principal wishes to authorize his agent to make “unlimited” gifts, he can no longer do so by the simple expedient of including in his power of attorney document the short hand statutory language “to make gifts”. Instead, to authorize the making of “unlimited gifts”, the principal must now do so “by specifically providing for and defining the agent's authority in the power of attorney”. 20 Pa.C.S.A. §5601.2(c). A principal can still use the short hand statutory language to authorize the making of “limited gifts”, those being limited in any one year to the amount equal to the Federal gift tax annual exclusion ($13,000 in 2011). Also included in the 1999 Act was a new subsection (e) that reads as follows:
(e) Equity-- An agent and the donee of a gift shall be liable as equity and justice may require to the extent that, as determined by the court, a gift made by the agent is inconsistent with prudent estate planning or financial management for the principal or with the known or probable intent of the principal with respect to disposition of the estate.
It is also interesting to note that the Joint State Government Committee in its Notes to the 1999 Act said, as to subsections (a), (b), and (c) of this new provision of the law, “It is the intent of [these] subsections to overrule Estate of Reifsneider, 531 Pa. 19, 610 A.2d 958 (1992), to the extent that Reifsneider would permit an agent to make a gift under a power of attorney which does not specifically provide for that power.” Query, whether the General Assembly adequately staunched the tide of potential fraud and abuse as concerns the making of gifts with new section 5601.2.
The next substantive change to the Act came in 2002. Act 2002-50 (S.B. 1014) P.L. 330, §9.1. This law added new sections 5601(E.1) [“Limitation on Applicability in Commercial Transactions’]; and 5601(E.2) [“Limitation on Applicability in Health Care Power Of Attorney”]. One year later the Act was amended again. 2003-36 (H.B. 786) P.L. 211, §1. The only change here was the addition of another exception to the applicability of the Act, this one for “a power given to a dealer as defined…by the Board of Vehicles Act, when using the power in conjunction with a sale, purchase or transfer of a vehicle ….” [20 Pa.C.S.A. §5601(E.1)(1)(v)]. None of these amendments had anything to do with curing perceived abuses under the Act.
The most recent amendment to the Act did address potential abuse by amending, in fact, those two provisions of the Act identified above in the discussion about “altering an estate plan”; i.e., sections 5603(p) and (q), the power to "engage in insurance transactions", and the power to "engage in retirement plan transactions". This appeared in Act 2010-85 (S.B. 53) P.L. 837, §4. In the former, the following new sentence was added to section 5603(p)(3): “An agent and a beneficiary of a life insurance policy shall be liable as equity and justice may require to the extent that, as determined by the court, a beneficiary designation made by the agent is inconsistent with the known or probable intent of the principal.” In the latter, the following two new sentences were added to section 5603(q): “However, the agent cannot designate himself beneficiary of a retirement plan unless the agent is the spouse, child, grandchild, parent, brother or sister of the principal. An agent and a beneficiary of a retirement plan shall be liable as equity and justice may require to the extent that, as determined by the court, a beneficiary designation made by the agent is inconsistent with the known or probable intent of the principal.
To summarize, this is the current state of affairs (and the law) when it comes to agents being able to affect a principal’s estate plan and the potential for fraud and abuse. Agents can still give away all of the principal’s assets while he is alive, if the (perhaps unsuspecting or less than diligent) scrivener of the document includes the magic language in new section 5601.2(c). If the document says only the power “to make limited gifts”, the agent can bleed the principal only a rate of $13,000 per donee per year. The agent can change the beneficiary of all of the principal’s life insurance policies and retirement plans, including naming himself or herself if he or she happens to be the spouse, child, grandchild, parent, brother or sister of the principal; provided, further, the designation is not “inconsistent with the known or probable intent of the principal”
Novosielski
Here’s another method an agent can utilize that can severely impact an estate plan; and one just given the imprimatur of our Supreme Court with its recent adjudication in In re: Novosielski, 605 Pa. 508, 992 A.2d 89 (2010). An agent can change the title to all of the principal’s “accounts” to joint ownership with the agent (or a friend or neighbor) as the other joint owner, and rely on The Multiple-Party Accounts Act, 20 Pa.C.S.A. §§6301-6306, (“MPAA”) to be able to inherit all of the accounts so re-titled upon the death of the principal, regardless of the terms of the principal’s will.
One may recall that the Superior Court opined in the Novosielski case, 2007 Pa. Super 292, 937 A.2d 449 (2007), when the case first came before it, that the terms of a last will executed before the creation of the joint intent at the account should be considered “clear and convincing evidence of a different [testamentary] time the account is created”; and expressed concern that “for all practical purposes… section 6304(a) [can be used] to revoke the prior will in a manner not contemplated by our statutory scheme”; and that “to conclude otherwise would lead to the frustration of testamentary intent and could result in fraud”. But the Supreme Court decided, on all accounts, otherwise. Instead, the Supreme Court’s opinion is that the MPAA trumps both Chapter 21 (relating to intestate succession) and Chapter 25 of the PEF Code (relating to wills); and that there should be no compulsion “to read the provisions of the MPAA in pari materia with those other sections of the …PEF Code”. 605 Pa. at 519.
An interesting omission in the Novosielksi case, as it relates to the topic of this article, is that there was no discussion at all in the Superior Court’s opinion, or the Supreme Court’s opinion, about whether the Uniform Durable Power of Attorney Act does or does not allow, or whether it should allow an agent to be given the authority to convert accounts of a principal into joint ownership. Because nowhere in the Act is there any provision that specifically authorizes it. The closest provision one can find that may apply is in section 5603, which includes the detailed description of all those powers listed in section 5602 that can be included in a power of attorney document with “short hand language”, specifically, section 5603(m), the power to "engage in banking and financial transactions”. But in none of the six numbered paragraphs made part of §5603(m) does it