Powers of Attorney are an easy and relatively affordable tool for use by individuals with diminishing mental capacity and physical abilities. They offer a ready means for managing the assets of another person as well as the payment of the day to day expenses. The ease of use has, unfortunately, also led to abuse. Over the years, the State has struggled to find a way to address this.
Earlier this year, Governor Martin O’Malley signed into law the Maryland General and Limited Power of Attorney Act. The Act, popularly known as Loretta’s Law, was designed in large part to enhance protection for the elderly from abusive agents. A groundswell for the Act started after Loretta Soustek, an 87 year old women suffering with dementia, gave her niece a Power of Attorney. Rather than exercising the Power of Attorney for the benefit of her aunt, Ms. Soustek’s niece used it to buy herself a new home and pay off her own credit card bills. The end result was that the niece wiped out nearly half a million dollars of her aunt’s assets.
Abusive agents were not the sole genesis for the Act. There were problems with banks, financial institutions and insurance companies refusing to accept or honor a Power of Attorney. In Maryland, there is no statutory or common law basis for requiring a third party to recognize a properly drafted Power of Attorney. In those situations where the bank refused to honor the document, the agent was left with no choice but to incur significant expense and lost time establishing a guardianship to accomplish what should have been covered by the Power of Attorney.
The new Act becomes effective as of October 1, 2010. Some of the more salient points include the following:
- An agent can be required to disclose receipts, disbursements and other transactions conducted on behalf of the principal. Parties empowered to require such disclosure include a court, the principal, a guardian, conservator, another fiduciary acting for the principal, a government agency as well as the personal representative of the agent’s estate following the agent’s death.
- Various parties are entitled to petition a court to construe the Power of Attorney and to have the court review the agent’s conduct, including: the principal, a guardian or other fiduciary acting for the agent, an authorized health care agent, the principal’s spouse, parent or descendant, an heir, a person named as a beneficiary to receive property of the principal, a government agency acting to protect the principal as well as the principal’s caregiver.
- A bank, investment company or other financial institution must accept a Power of Attorney that substantially conforms to the statutory form. Failure to accept and honor the document will subject the bank, etc., to a court order mandating acceptance as well as subjecting them to the payment of reasonable attorneys’ fees incurred in securing enforcement.
- The Power of Attorney is presumed to be “durable” unless otherwise expressly provided. Such presumption means that the Power of Attorney will remain in full force and effect following the subsequent disability of the principal.
- There are more stringent signing requirements. This includes having the principal sign in the presence of a notary public and attested to by two or more witnesses who sign in the presence of the principal and in the presence of each other.
- The agent is required to act in accordance with the principal’s reasonable expectations to the extent actually known by the agent and, otherwise, act in the principal’s best interest. The statute further requires that the agent act with care, competence and diligence for the best interest of the principal.
- Once an agent has accepted appointment, he/she is required to act loyally for the principal’s benefit, not create a conflict of interest, keep a record of all receipts, disbursements and transactions made on behalf of the principal, cooperate with a person that has authority to make health care decisions for the principal and attempt to preserve the principal’s estate plan, if known and if such preservation is consistent with the principal’s best interest.
- Unless the Power of Attorney otherwise provides, an agent is entitled to reimbursement of expenses reasonably incurred on behalf of the principal but the agent is not entitled to compensation. If compensation is expressly authorized in the Power of Attorney document, it must be reasonable under the circumstances.
As is often the case, it will take some time to fully identify and understand all of the nuances of the new statute. We are closely monitoring this and determining how to best meet the needs of our clients in light of the new law. In order to take advantage of the Act’s requirements that banks and other financial institutions honor a Power of Attorney that substantially conforms to the new law we are creating a document that we believe will fall squarely within its parameters. Because, however, the new law fails to address a wide assortment of powers that stand to benefit many clients, we are presently inclined to also use a second, stand alone document, to better assure that the needs of our clients are met. Since interpretation of the new law is just evolving, we will further update this post as the situation warrants.