Good health and independence are luxuries you probably don’t think about as you go about your daily life. It’s hard to image a scenario where you would not be able to act on your own behalf.
The pandemic reminded us of the sobering possibility of being incapacitated for more than a week or two. This led many to give their finances a fine-tuning and POAs and other important documents a reexamination.
Most people think that if they have a fully executed Power-of-Attorney (POA), they have ensured an uninterrupted management of their affairs. You may be shocked to learn that new national and state laws may have prohibited your agent’s power to act.
This article focuses on Pennsylvania law. However, many states have instituted similar changes. Brokerage firms are typically national in nature, so they tend to look to national laws for guidance on legal issues and then customize their opinions based on fact patterns for each client. Let’s look at some of the major changes that have occurred.
Question 1
Do my Power of Attorney documents comply with HIPAA laws?
Some of the most powerful changes in power of attorneys came in 2004 with the inception of the new Health Insurance Portability and Accountability Act (HIPAA) laws. These laws not only set a standard for the electronic transfer of health data, but also ensured the privacy and security of the information. Without language in your power of attorney document that specifically allows your agent to pierce the HIPAA laws, access to health insurance information and the ability to make healthcare decisions for your loved ones may not be available to your POA.
Around the time these laws were passed, many attorneys began to separate healthcare powers from financial powers in two totally separate legal documents. Because of this separation, it became possible to name different agents to handle financial affairs and healthcare issues. This was perhaps a silver lining to these changes, since it’s not unusual to have one child who excels in finances and another who has a healthcare background.
Question 2
What “hot powers” have I given to my Power of Attorney?
The next big change to power of attorney documents was spurred by sweeping laws requiring specific authorization for actions now called “hot powers.” These new laws were enacted to protect against abuse—and in some cases, to guard against draining assets from the incapacitated, protecting them from extraordinary healthcare costs.
On the national front, these laws went into effect in 2006 when the New Uniform Power of Attorney Act took effect. But in Pennsylvania, these new laws didn’t go into effect until January 1, 2015 through the passage of Act 95. Financial custodians such as Fidelity and Vanguard are typically national in nature, so conflicts about when these new laws are effective are precarious. Below is a list of these hot powers:
- Create, amend, revoke, or terminate an inter vivos trust unless specifically permitted under the language that permits the Agent to “create a trust for my benefit” or “make additions to an existing trust for my benefit.”
- Make a gift or gifts.
- Create or change rights of survivorship in financial accounts or real property.
- Create or change a beneficiary designation.
- Delegate authority granted under the POA.
- Waive the Principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan.
- Exercise fiduciary powers that the Principal has authority to delegate.
- Disclaim property, including a Power of Appointment.
These powers are significant and can completely alter an estate plan. Gifting powers without further clarification can be interpreted in a wide range of prudent lenses. Innocent transactions like gifting a car to a grandchild when your driving privileges cease can now be prohibited, unless specific language is in place in your legal documents. Another significant power is that of changing or naming beneficiary designations. Life is full of change, and as families evolve, it may become necessary to rename beneficiaries. If you decide to move your investments from one custodian to the another, this will typically involve naming beneficiaries; opening new accounts may be a hurdle.
In addition, legal asset protection strategies require gifting and retitling of assets. Without these powers, your ability to safeguard assets and carry out an estate distribution as intended may be significantly counteracted.
When drafting a new power of attorney, you will be asked specifically whether to grant these hot powers to your agents. It can be challenging to give such broad powers to another. Your attorney can typically provide strategies to put checks and balances into these powers to make these decisions more palatable. For example, if unlimited gifting powers gives you pause, you may want to consider having two agents sign instead of just one.
Question 3
Can my Power of Attorney legally access my digital accounts
On January 19, 2021, another hot power became effective in Pennsylvania. This time, the focus was on access to digital assets. Digital assets are things like your e‑mail, Facebook, or Twitter accounts (and virtually anything else that you access with a username and password). It is ironic that these laws took effect in the middle of a pandemic that exponentially increased the use of digital assets. The benefit, though, has been a greater focus on adding digital-asset powers to estate documents.
Without giving your agent these powers, your agent may have to obtain legal assistance to gain access to your accounts, causing significant delays. Keep in mind that many people receive financial, insurance, and utility statements via online documents instead of paper statements. Without access to these accounts, your agent may not be able to obtain documents that contain information critical to managing your affairs.
Now is the time to thoughtfully review your power of attorney documents. You will want to make sure your agent has the necessary powers to manage your affairs if you are incapacitated.
