New Uniform Power of Attorney Act Signed Into Law for Estate Planning Michiganders
Last week, Governor Whitmer signed into law House Bill 4644 which adopts the uniform power of attorney act. The purpose of the new law is to strengthen the acceptability of power of attorney documents at banking institutions and other places where financial transactions are conducted.
As our so-called "Baby Boomer" population ages, the use of powers of attorney as a key component of one's estate plan is now ubiquitous, and necessary.
The New Power of Attorney Law
The uniform act allows a person -the principal- to designate an agent to conduct business and financial affairs on the principal's behalf in the event of incapacity or some other circumstance where the principal cannot be present to conduct matters on their own.
By adopting this uniform act, the Michigan Legislature essentially relied on an interest group of experts -the National Conference of Commissioners on Uniform State Laws- to draft this legislation. This is not unusual; there are many areas of law where our legislature has relied on national experts to draft complex legislation.
When a legislature adops a uniform law or code, they avoid having to recreate the proverbial wheel. In the case of the power of attorney document, the uniform power of attorney act has been around since 2006.
Here is a link to the new power of attorney law, as enacted by the Legislature and signed by Michigan's Governor. This new legislation has the following objectives:
Makes POA documents more accessible to Michiganders thus reducing the need for more drastic measures such as conservatorships and guardianships
Makes POA documents more acceptable to financial institutions
Provides default rules that give broad authority to the agent to act
Protects the principal from fraud
Requires the agent to follow a specific set of mandates
Protects third parties that rely on the power of attorney
Encourages the use and acceptance of powers of attorney
Requires that the principal to expressly grant authority to carry out certain actions
Another utility that a power of attorney adds is the minimization for the need of a guardian to be appointed. Guardianships grant one adult maximum control over another adult; a disfavored status in our free society. The new uniform power of attorney act is designed to reduce the need for the more drastic probate remedy of a full guardianship.
Also, the new power of attorney law does not invalidate an existing POA. We anticipate, however, that the new law may prompt financial institutions to require your agent to present verificiation or even an opinion letter from an attorney as to the validity of the document.
The Uniform Act also contains a generic form for instances when a POA is needed quickly. This form does not qualify as a medical power of attorney or a health care advanced directive. Nor does it authorize anyone to act as your agent relative to a minor child or incapacitated individual under your control.
The generic form also contains a menu of choices, advising that you consult with an attorney. Because each of the choices listed on the form may have unintended consequences, or may conflict with your existing estate plan, we also recommend that you consult with an attorney prior to checking the boxes on the form and executing it.
Giving Another Person Control of Finances
Whether you or a loved one is considering the nomination of a power of attorney in your estate plan, or whether you are considering petitioning for guardianship, the first step is nominating a suitable individual. This is a tough decision.
As we grow older, it is important to have enough self-awareness to realize when to release control to a trusted fiduciary. Timing on this issue is everything.
Once a person is trapped in the throes of dementia or some other cognitive decline, it is often too late to perform basic estate planning; others will be court-appointed to do it for you.
A recent study completed by the American Economic Association suggests that an overwhelming majority (84%) of investors over age 55, and with some established cognitive issue, prefer to remain in control of their finances until they manifest some sign of further decline.
When is the right time to nominate a power of attorney? One of the first signs of dementia is missing bill payments. Another subtle early warning sign is having no recollection of specific conversations, especially conversations involving finances.
Working with a trusted family member, friend or professional fiduciary early in the aging process is a significant advantage. This type of forethought can minimize the possibility of financial manipulation or financial elder abuse.
While financial planners will have contact information on third parties whom their clients have designated, such trusted individuals are not granted the authority to help manage the client's portfolio. For that, a power of attorney is necessary.
Even when a power of attorney is done property, and at the right time, there can be a rough road. Sometimes, the principal makes financial missteps that the POA cannot undo. Most institutions will assert that it was the principal that paid out the money for someone or something, and that he was free to do so. While nominating a trusted individual well in advance is always a good idea, it is not a guarantee of full financial protection.
Professional Fiduciaries
If you do not have a family member or friend you can trust, where do you turn? Professional fiduciaries are licensed and regulated by state agencies. Here in Oakland County Michigan, Public Administrators often serve as professional fiduciaries.
A professional fiduciary is required to maintain financial records and must segregate the principal's funds from their own. They are prohibited from self-dealing and undue influence.
Nevertheless, there are still horror stories involving the use of professional fiduciaries. Sometimes these stories are generated by the media or interest groups that oppose the use of attorneys or other professional fiduciaries. Often, the facts of financial abuse are exaggerated, but not always.
Power of Attorney Best Practices
When performing basic estate planning, including designating a power of attorney to handle your financial affairs in the event of some type of incapacity, here are a few best practices:
Talk to friends and family early; before a cognitive decline;
Prepare an estate plan with an estate planning lawyer;
Freeze credit reports;
Nominate a person you trust to be your power of attorney - agent;
Once completed and executed, provide your agent with a copy of the power of attorney;
Provide a copy of your POA to your financial institution(s);
Verify with your financial institutions that they will honor the POA that you have provided; and
Avoid solicitations.
That last practice pointer is important. We here at Clarkston Legal have seen many a client lament about an aging family member that opened the door or answered a phone call from a solicitor and ended up paying a steep financial price.
We Can Help
If you or a family member is in need of a power of attorney or other components to a basic estate plan, contact our office for a free consultation.