The NC Uniform Financial Power of Attorney Act went into effect on January 1, 2018. It is the first major overhaul of this law since the early 1980’s.
A financial power of attorney (FPOA) may be the most important estate planning document an individual can have. If you do not have other estate planning documents (wills/advance directives), the law provides, in default, answers to who gets what, who is likely in charge of key duties, and other important decisions. If you do not have a FPOA, there is NO ONE named in the law by default in charge of your financial affairs while you are living should you become incompetent. At which point a family member will have to ask that a guardian be appointed to manage your financial affairs, which will be costly, time consuming, and a matter of public record.
This column will discuss the most important changes in the law, and the next column will discuss other common-sense issues about the provisions of your FPOA and its execution. Narrowly drawn elder-law planning language and other options will be addressed as well.
Why is the document called a power of attorney, anyway? The phrase has been used for over two hundred years for a very obscure reason that does not make a lot of sense, truthfully. Other qualifying words, such as “general” or “durable”, compound the confusion. The document essentially allows you (the principal) to designate a financial agent to act on your behalf. An agent does not have to be an attorney. You are simply appointing another person to transact your business and personal affairs, so do not be put off by the name.
The most relevant changes to the law are:
- The new FPOA law makes it clear that copies of FPOAs and not the original document are sufficient for agents to be able to transact business with banks and others on behalf of their principals (the person for whom the agent is acting). Institutions were increasingly requiring agents to produce the original power of attorney, with original signatures, to transact business.
- Other than for normal business transactions, the power of an agent to make gifts must be specifically stated. The requirement that the agent cannot make gifts to himself without explicit authority helps to prevent the agent from misusing the funds of the principal.
- An entity or person generally has 7 business days, a safe harbor if you will, to review and determine the validity of a FPOA, without liability.
- Under the new law, a FPOA is by definition “durable” (still active even though the principal is incompetent), even though it may not state explicitly it is durable. Under the former law, if the principal becomes mentally incompetent, the agent’s authority terminates, unless the POA states explicitly it is durable.
- The new law does NOT impact health care powers of attorney or health care documents for a minor child, and any existing general FPOA on record is still valid.
- The power of an agent terminates if there is a court decree of absolute divorce between a principal and the agent, unless the FPOA provides the agency continues after divorce. This was not the law previously.
- Since the new statute is part of a national uniform model law, a new FPOA will likely comply with the FPOA laws of another state should the principal move to another state, or a person moves to NC with a FPOA executed in another state.
In the next column we will address how to change (revoke) an agent’s authority, execution miscues that could create problems, and common elder law planning provisions.
Remember: An informed choice is a smart choice.
Mike Wells is a partner with Wells Law, PLLC in Winston-Salem. His email address is mike@wellslaw.us and his telephone number is 336.283.8700.