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The Advisory Committee on Decedents' Estates Laws has issued a Report to the Joint State Government Commission for proposed amendments to the Probate, Estates and Fiduciaries Code, focusing primarily on Chapter 56 dealing with powers of attorney. A Post-Gazette article last Friday highlighted the report at

www.post-gazette.com/pg/10085/1045781-454.stm

The report is available at the Joint State Government Commission website at jsg.legis.state.pa.us . The report is the result of 1 1/2 years of work by the Guardianship and Power of Attorney subcommittee, Chaired by Jack Lombard of Philadelphia. We were fortunate to have had the input of our two new Superior Court Judges from the Orphans' Court Divisions of Philadelphia and Chester County -- Judge Ann Lazarus and Paula Ott, as well as Montgomery County Orphans' Court Judge Cal Drayer on this subcommittee, as well as less formal input from our own Allegheny County Orphans' Court Judges.

The timing of the report was formally a response to a House Resolution requesting that the Commission have its Advisory Committee review the Uniform Power of Attorney Act as well as our current Power of Attorney statute for the possible adoption of the Uniform Act or other changes and improvements thought to be advisable.

In a general sense the Committee concluded that we should draw from the Uniform Act provisions and ideas that we thought would improve the law, but we did not think that an overall adoption of the Uniform Act would be helpful. The Uniform Act is several times longer than the current Pennsylvania statute, and many of the most important areas are already addressed adequately in the opinion of the Committee.

More than anyone else, Jack Meck took the laboring oar in the committee process, and the three page chart starting on page 209 of the Report showing the history of how our Chapter 56 has built with gifting powers beginning in 1982 was his creation.

Powers of attorney broadly and historically speaking have been used to beneficially and privately carry out the affairs of clients without the need for significant court involvement, as contrasted with the guardianship process. For the most part, durable powers of attorney work well to allow financial decisions and activities to be carried out even when the principal is incapacitated. But the historical and primary purposes of the power of attorney have been extended to the highly useful, albeit more dangerous area of gifting and carrying out the principal's intentions with respect to estate planning. Here the ground is more dangerous, the footing more uncertain, particularly where the agent is the one benefited by the gifting or other actions that can either carry out or defeat the principal's intent. And this is where we intended to draw the line more carefully. Where ordinary financial and business dealings were involved, the amendments were primarily simply meant to make helpful supplemental changes to the law. In the gifting and estate planning areas, the approach was much more protective. Fundamentally, some changes were made to the gifting to more precisely define what is allowable by power of attorney, and actions to carry out the principal's estate plan are allowable, while changes in the principal's estate plan, such as by change to a beneficiary designation, would require both authorization in the document and approval by the Orphans' Court Division.

The report proposed major changes to our Power of Attorney statute. Among the highlights:

1. A two witness requirement for a durable general power of attorney is added.

2. An additional basic duty of the agent is inserted to "preserve the estate plan of the principal." A corresponding change in the acknowledgment will incorporate this duty.

3. The health care powers previously found in Chapter 56 are removed prospectively and placed into Chapter 54, which deals directly with health care decision making.

4. The agent and a recipient of a gift or other financial benefit during the principal's life or at the principal's death, arising from the action of the agent is liable as justice and equity may require to the extent that the court determines the agent action to be inconsistent with prudent estate planning or financial management for the principal, or the known or probable intent of the principal with respect to the disposition of the principal's property. This language had previously been in the statute in dealing with gifting powers, but this broad equitable principle would now be expressly applicable to all of the agent's actions which may benefit one party and hurt another.

5. The power to make "limited gifts" is retained and modestly expanded as these gifts are thought to have been highly useful and are not the frequent subject of abuse.

6. Other gifts which are specifically authorized and which identify the donee, the property to be gifted and with the amounts of cash gifts are allowed as are other actions which maintain and are consistent with the preservation of the principal's estate plan.

7. Actions which change the principal's estate plan would only be allowed where the action is authorized by the power of attorney and the action is approved by the Orphans' Court Division. Note that in a relatively small number of cases, this may allow the practitioner to get court approval for estate planning change without having to go through a full guardianship proceeding.

8. Several new powers were added to the statute, including the power "to operate a business or entity" and the power "to provide for personal and family maintenance." The first power to operate a business or entity both clarifies the ability to give an agent the authority to continue or participate in the operation of any business or other entity and also the power to change the form of ownership to a corporation, partnership, limited liability company or other entity. The power to provide for personal and family maintenance would allow customary payments for both children and other individuals who are legally entitled to be supported by the principal, but also individuals whom the principal has customarily supported. This could be an adult child or some other relative, the idea here being to essentially preserve the status quo based upon the principal's prior actions.

9. There is a provision which expressly allows the court to order an investigation, appoint a guardian ad litem or make a referral to an appropriate agency where the court believes that the principal is suffering from financial abuse or mismanagement.

10. The majority of the changes are proposed to take effect six months after enactment to allow all the parties involved in drafting, interpreting and implementing powers of attorney the opportunity to digest the changes. The sole exception to this is the addition of the broad equity and justice principle applicable more broadly to the agent's activities.

If you have gotten this far in the e-mail because you have great interest in the changes that may be coming in our Power of Attorney Statute, you may wish to read the report itself and you may wish to do it with the following suggestions (it is over 200 pages long). First read the 13 pages of background and overview at the beginning of the report. Next review the actual Statutory Recommendations contained on pages 103 to 129. In doing so you may wish to read the comment to each section which indicates the thought behind many of the statutory change. These Official Comments like all such Comments found in Purdon's, can be cited as legislative history 1 PA C.S. 1927

It is very likely that the suggested changes, with whatever changes may occur in the legislative process, will eventually become law, but the timing of course is quite uncertain. It is also certain that the Pennsylvania Bankers Association and others will have comments and concerns which will be addressed as the process continues.

If upon reading the proposed statutory changes, you have serious concerns about a provision or you spot an error in the drafting, please feel free to get in touch with Jack Meck or me, or Bill Reis, another Pittsburgher on the Power of Attorney Subcommittee. There are always second thoughts and corrections to any major statutory change. We try to catch as many of them as we can in the process, so we need to be open the criticism to minimize the changes required later.

Please read the important information relating to tax advice at the bottom of this web page.

Best regards,
Bob Wolf, Moderator

“Any tax advice in the foregoing message was not intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties that may be imposed with respect to the matters addressed. Some of that advice may have been written to support the promotion or marketing of the transactions or matters addressed within the meaning of IRS Circular 230, in which case, be advised that the advice was written to support the promotion or marketing of the transaction(s) or matter(s) addressed, and you should seek advice based on your particular circumstances from an independent tax advisor.”