Third Party Immunity for Relying on Powers of Attorney

by McNees Wallace & Nurick LLC
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There is no such thing as no liability, but as a result of recent sweeping changes to Pennsylvania's Power of Attorney statute, third parties should have a much higher level of comfort when taking direction from agents.  If an agent has a specific power under a Power of Attorney document, no matter how long ago it was executed, a third party has legal immunity when acting on the direction of agent.  Gone are the days of financial institutions requiring their own form or a current designation; in fact, now third parties can face liability for refusal to accept a durable Power of Attorney.

In 2010, the Pennsylvania Supreme Court reached a disconcerting interpretation of Section 5608 of the Pennsylvania Probate, Estates and Fiduciary Code.   In Vine v. Commonwealth of Pennsylvania, State Employees' Retirement Board, 9 A.3d 1150 (Pa. 2010), statutory immunity was not afforded to a third party acting on the instructions of an attorney-in-fact in a case where the document appointing the agent was invalid.  From this case, it seemed the onus to determine the validity of a financial POA designation was passed to third-parties receiving instruction from agents. This ruling exacerbated already existing hesitancy of financial institutions to accept direction from agents appointed under general durable powers of attorney. 

In an attempt to fix the problem of agents' authority being denied by third parties, Act 95 of 2014 was passed into law on July 2, 2014.  Act 95 represents a significant change to Pennsylvania's Power of Attorney statute.  The various changes are meant to limit fraudulent documents, the abuse of powers by designated agents and the liability of third parties taking direction from agents. In addition to specifically stating that courts "shall give due consideration of the intent of the General Assembly to reverse the interpretation" of Vine v. Comm. of PA, the legislature specified requirements for the execution of a Power of Attorney, enhanced the responsibilities of designated agents, and increased the scrutiny that third-parties must give to the powers granted to the agent. 

Under Act 95, valid Power of Attorney documents executed after December 31, 2014 are required to have the principal's signature notarized and witnessed by two individuals other than the agent and notary.  The Notice to principals is lengthened to include a warning that executing the document may give the designated agent the power to give away all property during lifetime and/or change the disposition of assets after death.  An admonition to seek the advice of an attorney before appointing an agent is included in the Notice.   Similarly, the agent's Acknowledgement includes acting in accordance with the principal's reasonable expectations, acting in the principal's best interest, acting in good faith, and acting within the confines of the powers granted in the document.  Scriveners are already changing their Power of Attorney documents to be in compliance with Act 95 in 2015 and beyond. 

Act 95 also details agents' specific duties to principals, including a duty of loyalty, avoiding conflicts of interest, recordkeeping, cooperating with designated health care agents, and preserving the principal's estate plan.  Any third party professionals engaged by agents, such as custodians, trustees, estate planners and money managers, should be fully aware of agents' statutory duties and limits of liability detailed in §6501.3.   

Most importantly, third parties taking direction from an agent must have a clear understanding of the particular limits of an agent's authority so that they do not act on unpermitted direction for which the agent has no authority.  Unless specifically granted under the Power of Attorney document, agents are generally not permitted to:

  • Create, amend, revoke or terminate an inter vivos trust (in most cases)
  • Make gifts (except for limited gifts in some specific circumstances)
  • Create or change rights of survivorship
  • Create or change a beneficiary designation
  • Delegate authority granted under the Power of Attorney
  • Waive the principal's right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan
  • Exercise most fiduciary powers
  • Disclaim property, including a power of appointment

In exchange for greater immunity from liability, agents are required to provide additional information to third parties upon request, such as an affidavit that the Power of Attorney is still in effect, a translation, or an opinion of an attorney that the document can be relied upon.  If the agent complies with the request(s), the third-party is required to accept the document as valid and the third party is prohibited from requiring a different form.  Act 95 removes investigative responsibility as to the validity of a document from the third party.  Third parties are more than entitled to rely on Power of Attorney documents; they are required to.  Except for some specific exceptions, such as actual knowledge of termination, refusal to act under the specific authorities granted under the Power of Attorney document may result in civil penalties.  The requirement is effective immediately and powers of Attorney executed prior to January 1, 2015 must also be accepted.   

Taken together, the changes brought about by Act 95 grant significant legal protection to third parties when dealing with agents, provided they vigilantly scrutinize the powers granted by the principal prior to acting on agents' instructions.  It is more important than ever to read the document.  Questions will be raised as to the application of specific exceptions and powers granted.  If third parties are ever in doubt as to whether or not an agent has the authority for the direction given, they should seek the advice of an attorney at law to make sure the document is understood.


 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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