The New Connecticut Uniform Power of Attorney Act Part 2
This second article in a two-part series on the new Connecticut Uniform Power of Attorney Act, effective October 1, 2016, examines additional changes in Connecticut law.
POAs and Third PartiesA common shortcoming of powers of attorney was that Connecticut had no requirement that third parties (for example, financial institutions) honor a valid power of attorney. This was a serious issue because POAs are created to allow the person to whom the power of attorney is granted (called the agent) to, among other things, manage accounts in financial institutions on behalf of the account owner (called the principal), particularly when the principal became incapacitated.
Some financial institutions refused to recognize valid powers of attorney unless they were drafted on the financial institution's own POA form. Frequently, these "forms" amounted to nothing more than an indemnity of the financial institution. This effectively thwarted a valid POA when it was needed most: when the principal became incapacitated. In those cases, families often had to institute conservatorship proceedings in the probate court.
The new Connecticut Uniform Power of Attorney Act attempts to address this issue by instituting penalties for third parties that refuse to recognize valid powers of attorney. It also provides third parties with options ("safe harbor" provisions) to allay concerns they may have about the validity of a power of attorney.
The new law establishes that a power of attorney that is acknowledged by a notary public or attorney is presumed to be valid, and a third party may rely on it.
If a third party refuses to accept or honor an acknowledged power of attorney, without falling under the safe harbor provisions, it will be subject to an order by a court mandating acceptance of the power of attorney.
Conflicts of InterestAnother area addressed by the new law is when the agent acts properly but may also have a conflict of interest. An example of this is when assets are transferred to family members under the power of attorney.
Agents have a duty to act in ways that avoid conflicts of interest. An agent is a fiduciary. Fiduciaries are required to place the interests of another above their own. It's common for the agent to be a family member of the principal. Estate plans may involve transferring assets or control of assets to a family member. An agent who is a family member might potentially have to transfer the principal's assets to him or herself, or to the agent's children. Anytime an agent benefits from their actions under a power of attorney, there is an inherent conflict of interest.
The new law allows the principal to waive the requirement that the agent avoid conflicts of interest. While there is always potential for an agent to abuse their authority under any power of attorney, that potential is greater if the requirement of avoiding conflict of interest is waived.
Provisions in the new law also may be helpful in managing a business or family vacation home.
Customization of POAsThe final area addressed by the new statute discussed in this article series is the customization of POAs to address unique needs and circumstances. This provision is consistent with the previous Connecticut Power of Attorney Act, which also allowed powers of attorney to be customized.
A power of attorney may be drafted very narrowly - for example, to provide the agent the authority to act on behalf of the agent for a single transaction. It could also be very broad, using the full extent of the allowance in the law to provide the agent with the ability to act on behalf of the principal in all areas allowed.
Not a "Do It Yourself" EndeavorWhile the new law represents a step forward, the increased complexity that goes along with it makes it more important than ever that powers of attorney be drafted only by qualified estate planning attorneys. I don't recommend using templates that lay persons "complete" nor do I recommend using faceless internet providers of legal forms or services that are only interested in getting your money in return for a mass-produced form that you don't understand and that may be ill-suited for your needs.
DisclaimerTHIS ARTICLE IS FOR INFORMATIONAL PURPOSES. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE RELIED UPON AS LEGAL ADVICE. FOR GUIDANCE ON YOUR SPECIFIC SITUATION CONSULT A QUALIFIED ATTORNEY.