By com mjohnson hill-law-firm Mark T. Johnson
, Hill, Glowacki, Jaeger & Hughes, LLP
Jan. 19, 2011 – With Wisconsin’s passage of the Uniform Power of Attorney Act (the Act),1 the law governing newly drafted powers of attorney for finances and property (POA) is clearer and more powerful. However, the Act’s effect on pre-existing POAs is less certain for individuals who use them and for attorneys who advise clients about their use.
One significant concern is that the Act will impose stricter oversight or construction of the POA, even to the point of running counter to what the principal originally intended.
As practitioners begin working under the Act, questions quickly arise regarding constraints on previously executed POAs. While the Act specifically assures the validity of pre-existing POAs (if valid when and where executed), the Act does not expressly address its effect on pre-existing POAs. Yet, there are some indications that pre-existing POAs are to be analyzed according to the law under which they were executed, that is, under pre-Act law.
Meaning and effect
As a first indication, the Act states that the “meaning and effect” of a POA is determined according to either the law of the jurisdiction indicated in the POA, or according to the law of the jurisdiction in which the power of attorney was executed. Thus, whether a power of attorney was executed in another state or before the current Wisconsin Act, the law at the place and time of execution determines the meaning and effect of the POA.
A prime example of this is the durability of a POA. Under the pre-Act law in Wisconsin, a POA is presumed to be “nondurable” and must expressly state that it is durable for it to be so.2 In contrast, a POA executed under the new Act is presumed to be durable unless the POA states otherwise. The Act does not change prior non-durable POA’s, as are commonly used in real estate and business transactions, into durable POA’s.
A second reason that the Act is not intended to retroactively address the meaning or effect of a POA is the general rule that only prospective application of a new statute is presumed. Retroactive application of a statute must be either expressly provided or a necessary implication of the enacting legislation.3
Gifting and self-dealing
Although many readers will now breathe a sigh of relief with the assurance that the new Act will not change the meaning of the POAs they have prepared over the years, when it comes to gifting, self-dealing, and the agent’s duties, further discussion is warranted.
The scope of powers in a POA are usually specific to the document or form used (whether pre-Act or post-Act), and so, gifting powers have been scrutinized in case law and clarified under the new statutes. Under both pre-Act and post-Act analysis, powers for gifting and self-dealing must be express and are narrowly construed.4 Likewise, other actions that would dissipate the principal’s estate, especially via self-dealing, are reviewed with equal strictness.5
Second, the value of the gift is one area that practitioners may feel constrained if required to follow the new Act’s default limitation. Frequently with attorney-drafted gifting powers, specific parameters for gifting are provided, such as dollar amounts up to the annual gift tax exclusion or gifts to certain individuals.
Unlimited gifting is rare; however, for any number of reasons, such drafting may occur. Under pre-Act analysis, it may seem that when a POA authorizes unlimited or unbridled gifting authority, the agent is free to make any gifts he or she wishes.
However, this is where gifting authority and the duties of an agent intersect. Even authorization for unlimited gifting must be exercised within the agent’s common law fiduciary duties, i.e., according to the principal’s expectations or in the principal’s sole interest. Unlimited gifting is rarely a ticket to freely dissipate the principal’s assets.
In comparison, under the new Act, any gifting or other dissipation of the principal’s property must be expressly provided. The Act does not allow an agent under a POA to make gifts of or otherwise dissipate the principal’s property unless specifically authorized to do so. Furthermore, self-dealing relating to any of the enumerated actions must be specifically authorized, unless the agent is the principal’s spouse or domestic partner.
When gifting is authorized, the Act sets forth default limits on gifting. First, unless otherwise provided in the POA, gifts are limited to the amount of the annual federal gift tax exclusion per donee. Second, a fiduciary standard is set forth – gifts must be made consistent with the principal’s objectives or in the principal’s best interest. The Act sets forth factors for determining if gifts are made in the principal’s best interest.6
Duties of Agents
For pre-Act POAs, an agent owes a principal certain fiduciary duties. Typically, accountings and the fiduciary duties of loyalty and good faith are expected of an agent toward the principal. In the POA context, the principal’s sole interest is paramount as an agent’s duty.
With the pre-Act statutory form, an accounting could be required at specified time intervals or could be waived. Likewise, pre-Act attorney-drafted POAs often address or relax particular fiduciary duties.
Under the new Act, an agent’s duties are specifically addressed in Wis. Stat. section 244.14. The minimum, non-modifiable fiduciary duties require the agent: (1) to follow the principal’s reasonable expectations (or if unknown, to act in the principal’s best interest); (2) to act in good faith; and (3) to act only within the scope of authority granted in the POA.
With the new statutory form, the agent’s duties are summarized in an addendum.
Other fiduciary duties may be modified by the POA, and are enumerated in Wis. Stat. section 244.14(2), including, e.g., loyalty, cooperating with the principal’s designated health care decision maker, and keeping records.
A comparison of pre-Act and post-Act duties yields generally equivalent fiduciary duties under either body of law. First, as discussed above, minimal duties apply and typically cannot be modified, such as acting with good faith, acting in accordance with the principal’s expectations or best interest, and acting within the scope of the POA.
However, a couple nuances regarding these essential fiduciary duties should be noted. Occasionally, a principal’s reasonable expectations and best interest may diverge; therefore, the new Act modifies that duty to make the principal’s expectations primary.
Also, the principal’s best interest may be broader than sole interest. Under previous case law, an agent’s duty was for the principal’s sole benefit, even at the expense of the agent’s own interest.7 In contrast, the new Act allows an agent who acts with care, competence, and diligence for the principal’s best interest to not be held liable if the agent also benefits.
The model Uniform Power of Attorney Act, on which Wisconsin’s act is based, acknowledges this modified duty of loyalty and potential conflict of interest, recognizing “the practical reality that most agents under powers of attorney are family members” and seldom completely free of some interest in the principal’s affairs as is the principal’s intention.8
Next, the fully modifiable duties track fairly consistently, whether analyzed under pre-Act law or under the new Act. Pre-existing POAs, even with the state form, allowed options for relaxing certain fiduciary duties, such as accounting to the principal.
Not all the duties in section 244.14(2) are modifiable by provisions in the POA. In addition to the inclusion, narrowing, or relaxing of fiduciary duties in POAs, the new Act provides for additional guidance regarding the agent’s duties, such as disruption of the principal’s estate plan and liability for certain actions or inactions.
Wisconsin’s Act for financial POAs does not change the effect and meaning of pre-existing POAs. Where questions regarding the provisions of pre-existing POAs must be answered by case law analysis, the Act shows greater flexibility and clarity with default provisions. In many cases, the resolution of a question or issue may be the same whether under the pre-Act case law or under the new Act, as the Act frequently attempts to codify case law or create defaults based on common current trends.
About the author
Mark T. Johnson is an associate with Hill, Glowacki, Jaeger & Hughes LLP, Madison, practicing in areas of estate planning, family law, and elder law. He graduated with honors from University of Wisconsin Law School in 2008. Johnson can be reached at com mjohnson hill-law-firm hill-law-firm mjohnson com, or (608) 244-1354.
This article was adapted from the November 2010 State Bar Elder Law News, published by the Elder Law Section. The State Bar offers its members the opportunity to network with other lawyers who share a common interest through its 26 sections. Section membership includes access to newsletters, email lists to facilitate information sharing, and other resources.