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Power of Attorney Reform Aims to Stop Banks from Upending Estate Planning

Submitted by Amaris Elliott-Engel on Thu, 10/20/2016 - 18:05

Here's a recent piece I wrote for the Connecticut Law Tribune about reforms to that state's power of attorney law:

Sweeping changes have been made to Connecticut's power-of-attorney law, including making it harder for banks to upend the wishes of people who do estate planning by rejecting power-of-attorney forms.

Reforms to the law came into effect Oct. 1. Leaders in the Connecticut field say this is the first time the law has been updated for decades.

Paul Knierim, probate court administrator for Connecticut, said it has been commonplace for banks to frustrate the purpose of estate planning by rejecting power-of-attorney forms (POAs) at a stage when a senior citizen or a person with disabilities no longer has the competency to execute a form that would meet the bank's liking.

"The whole purpose of a durable power of attorney is to plan ahead … but [when] a bank won't accept the power of attorney the very purpose of the power of attorney gets frustrated," Knierim said.

The law will ensure that people will not have their "long-term estate planning upended by the whim of a bank teller," said Deborah Tedford, an estate attorney with the Tedford Law Firm in Mystic who was involved in drafting the new POA forms.

With the law change, family members can now go to probate court to enforce POAs and be awarded attorney fees and other costs if a bank or another third party is not following the law, Knierim said. The probate courts have been granted new authority to compel financial institutions to accept POAs.

On the other hand, bank personnel can also ask the court to review the actions of a person who has a POA if they have concerns that the person who granted the POA is being exploited, Knierim said.

The law also provides safe harbors to financial institutions who accept POAs, Tedford said.

There is now a POA long form and a POA short form that have been put into the law, said Tedford and Suzanne Brown Walsh, a partner at Murtha Cullina who focuses on trusts and estates and also helped shape the statutory forms.

Connecticut adopted a model law promulgated by the Uniform Law Commission, but further tweaks were made this year because the 2015 law was enacted in a hurry by Connecticut legislators, Tedford and Walsh said. The 2015 law envisioned one long form, but the revisions have resulted in a short form and a long form, they said.

The short form can be used to grant a power of attorney for real estate transactions and is signed at the end, Tedford and Walsh said.

The long form allows the person doing estate planning to initial certain types of powers they want to grant on the POA to their agent, including things such as making gifts, changing beneficiary designations and creating and terminating trusts. There is a third option under the law for attorneys to draft their own forms, Tedford and Walsh said.

The new law also is important because Connecticut is joining 20 other states that have enacted the model law, Walsh said. This means that it should be easier for elderly people, who relocate to be closer to their caregivers in other states, to have their POAs recognized, she said.

Another big change in the law is the expansion of the authority of Connecticut's probate courts to deal with people who are abusing the POA they have been granted, Knierim said.

"Powers of attorney are a double-edged sword," Knierim said. "They are an excellent tool for planning for incapacity. On the other hand, they are a very powerful instrument that a person who wants to do mischief can exploit. In the probate courts, we see, unfortunately, instances where agents under powers of attorney have abused the trust" placed in them.

As a result of those type of abuses, the category of people who can raise concerns about POA abuses has been expanded. For example, the law now states that a caregiver or a person who "demonstrates sufficient interest in the principal's welfare" can petition the court to review the actions of a POA agent.

Agents who abuse the POAs they have been granted also now can be ordered to reimburse for financial losses.

Connecticut's new POA law also has changed it so that POAs are assumed to be durable.

Attorneys should be aware that the new law does not address whether agents should be granted control in a POA over someone's email, social media accounts and other digital assets, Walsh said. Attorneys will have to add that authority in their own POA forms, she said.

The new law also is attempting to synthesize POAs with when courts authorize a conservatorship and appoint a guardian to manage the financial affairs of an elderly person or a person with disabilities, Knierim said. It used to be that the appointment of a conservator automatically terminated a POA.

Now, if someone has appointed a POA, the court has to determine if the POA can work in tandem with the conservator, Knierim said. This honors the first choice of people on who they wanted to have manage their affairs, Knierim said.