Estate and Succession Planning
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The New Florida Power of Attorney Act
The Florida law governing powers of attorney and similar instruments is found in Chapter 709 of the Florida Statutes. The Florida legislature on May 4, 2011 voted to pass Senate Bill 670 which significantly revises Chapter 709 in an attempt to achieve greater consistency among the states by conforming Florida’s power of attorney law to the Uniform Power of Attorney Act, with certain modifications. This post will discuss the highlights of the recently passed Florida Power of Attorney Act (the “Act”), which will become law when signed by the Governor.
A. Generally
A power of attorney is a writing that grants authority to an agent to act in the place of the principal. Pursuant to the Act, a principal is an individual who grants authority to an agent and an agent is the person granted authority by the principal in a power of attorney. The Act allows for both durable and nondurable powers of attorney. A durable power of attorney is one that is not terminated by the incapacity of the principal, whereas a nondurable power of attorney is terminated upon the principal’s incapacity. For a power of attorney to be durable, it must state that it is not terminated by the subsequent incapacity of the principal, or similar words that evidence the principal’s intent.
The Act applies to all powers of attorney created by an individual except a proxy or other delegation to exercise voting or management rights with respect to an entity, a power created on a form prescribed by a governmental agency or subdivision for a governmental purpose, and a power coupled with an interest (e.g., a power given to a creditor to sell pledged collateral).
B. The Instrument
1. Execution. Powers of attorney executed after the effective date of the Act (October 1, 2011) must be signed by the principal and by two subscribing witnesses, and be acknowledged by the principal before a notary public. A power of attorney executed before October 1, 2011 is valid if its execution complied with the laws of Florida at the time it was executed. Additionally, the Act considers a power of attorney executed in another state to be valid in Florida (even if it doesn’t comply with the execution requirements of Florida) if it complied with the execution requirements of the state of execution at the time it was executed.
Under the Act, a photocopy or electronic copy of a power of attorney has the same effect as the original, unless otherwise provided in the power of attorney.
2. Springing Powers. A springing power of attorney is one which does not become effective until the incapacity of the principal. Prior to the effective date of the Act, springing powers of attorney are valid in Florida. Following the effective date of the Act, however, powers of attorney must be effective as of the time they are executed (except for certain military powers of attorney).
3. Revocation. A principal may revoke a power of attorney at any time by executing a new power of attorney or other signed writing evidencing the principal’s intent to revoke the power of attorney. Note that under the Act simply revoking the power of attorney can be accomplished without witnesses or notarization and the principal may, but is not required to, give notice of the revocation to the agent.
4. Suspension and Termination. The authority granted under a power of attorney is suspended upon the initiation of a judicial proceeding to determine the principal’s incapacity or to appoint a guardian. The suspension continues until the court dismisses the proceeding or enters an order adjudicating incapacity. A power of attorney terminates upon the occurrence of any of the following events: (a) death of the principal; (b) incapacity of the principal when the power of attorney is not durable; (c) adjudication of incapacity of the principal by a court; (d) revocation of the power of attorney by the principal; (e) termination of the power of attorney pursuant to its terms; or (f) accomplishment of the purpose of the power of attorney.
C. Agents
1. Qualification. The agent must be a natural person who is 18 years of age or older or is a financial institution that has trust powers, has a place of business in Florida, and is authorized to conduct trust business in Florida.
2. Designation. A principal may designate a single agent or two or more persons to act as co-agents. Unless the power of attorney provides otherwise, each co-agent may exercise its authority independently. This is a change from existing Chapter 709, which provides a default rule that a majority of co-agents is required to take all acts in exercise of the power. Additionally, a principal may designate one or more successor agents to act if the initial agent is no longer willing or authorized to serve. Unless the power of attorney provides otherwise, the successor agent will have the same authority as the original agent.
3. Acceptance. There is no required method of acceptance contained in the Act. A person or financial institution accepts the appointment as agent by exercising authority or performing duties as an agent or by any other assertion or conduct indicating acceptance.
Interestingly, an acceptance does not automatically indicate an acceptance of all terms contained in the written power of attorney, but rather the scope of the agent’s acceptance will be limited to those aspects of the power of attorney for which the agent’s assertions or conduct reasonably manifest acceptance.
4. Reimbursement and Compensation. The Act adds a new provision to Chapter 709 dealing expressly with expenses and compensation. Unless the power of attorney provides otherwise, any agent is entitled to reimbursement for expenses reasonably incurred on behalf of the principal. Only qualified agents, however, are entitled to compensation and that compensation must be reasonable under the circumstances. A qualified agent is an agent who is the spouse or an heir of the principal, a financial institution with trust powers and a place of business in Florida, an attorney or accountant licensed in Florida, or a natural person who is a resident of Florida and who has never been an agent for more than three principals at the same time.
5. Resignation. Unless the power of attorney provides a different method for an agent’s resignation, an agent may resign by giving notice to the principal, to the principal’s guardian if one has been appointed, or to any co-agent. If no co-agent is serving, the agent may resign by giving notice to the next successor agent.
6. Termination. An agent’s authority under a power of attorney continues until such authority is terminated because: (a) the agent dies, becomes incapacitated, resigns or is removed by a court; (b) an action is filed for dissolution, annulment or legal separation of the agent’s marriage to the principal (unless the power of attorney provides otherwise); or (c) the power of attorney terminates. Note, however, that termination or suspension of an agent’s authority is not effective as to an agent who, without knowledge of the termination or suspension, acts in good faith under the power of attorney.
D. Duties of Agents
The Act goes a lot further than existing Chapter 709 to define the duties of Agents. The Act divides the duties of agents into two categories, those duties that apply notwithstanding a contrary provision in the power of attorney and those duties that apply in the absence of a contrary provision in the power of attorney.
1. Mandatory Duties. Regardless of the terms contained in the power of attorney, an agent who has accepted appointment must act only within the scope of authority granted in the power of attorney, which means the agent may not act contrary to the principal’s reasonable expectations, must act in good faith, may not act in a manner that is contrary to the principal’s best interest, and must attempt to preserve the principal’s estate plan. Additionally, the agent may not delegate authority granted under the power of attorney to a third person (except the agent may delegate investment functions in accordance with Florida’s Prudent Investor Rule), the agent must keep a record of all receipts, disbursements and transactions made on behalf of the principal and, if the power of attorney authorizes the agent to access the principal’s safe-deposit box, the agent must create and maintain an accurate inventory each time the agent accesses the box.
2. Default Duties. The default duties are the ones that apply unless the power of attorney provides otherwise. These duties provide that an agent who has accepted appointment shall act loyally and for the sole benefit of the principal, shall not act so as to create a conflict of interest that may impair the agent’s ability to act in the principal’s best interest, shall act with the care, competence and diligence ordinarily exercised by agents, and shall cooperate with any person who has authority to make health care decisions for the principal.
E. Authority of Agents
1. Generally. The Act also makes clear that an agent may only exercise the authority specifically granted to the agent in the power of attorney and any authority reasonably necessary to effectuate the express authority granted in the power of attorney (except as otherwise limited by the Act). Court approval is not required for the agent to take action in furtherance of an express grant of specific authority. Note, however, that general provisions in a power of attorney which do not identify the specific authority granted are not sufficient to grant authority to the agent (e.g., a provision purporting to give the agent authority to do all acts that the principal can do would not grant any authority to the agent).
2. Affected Property. An agent may exercise authority granted in a power of attorney with respect to property owned by the principal when the power of attorney is executed and property that is later acquired by the principal. The agent may exercise such power whether or not the property is located in Florida and whether or not the authority is exercised or the power of attorney is executed in Florida.
3. Prohibited Authorities. The Act does not allow an agent to exercise specific authority pursuant to a power of attorney to take the following actions: perform duties under a power of attorney that require the personal services of the principal; make any affidavit as to the personal knowledge of the principal; vote in any public election on behalf of the principal; execute or revoke any will or codicil for the principal; or exercise authority granted to the principal as trustee or court-appointed fiduciary.
4. Authority Requiring Separate Signed Enumeration. In a dramatic deviation from existing Chapter 709, the Act provides that there are certain authorities that the agent may exercise only if the principal signs or initials next to the specific enumeration of the authority in the power of attorney, such authority is consistent with the agent’s duties and the exercise is not otherwise prohibited by another instrument.
(a) Authorities. These additional requirements apply to the authority to create an inter vivos trust, to amend, revoke or terminate a trust created by the principal, to make a gift, to create or change rights of survivorship, to create or change a beneficiary designation, to waive the principal’s right to be a beneficiary of a joint and survivor annuity, and to disclaim property and powers of appointment.
(b) Further Restrictions. Notwithstanding the separate signed enumeration of authority to do any of the acts specified in Paragraph E4(a) above, an agent who is not an ancestor, spouse or descendant of the principal may not exercise authority to create in the agent, or in someone the agent is legally obligated to support, any interest in the principal’s property, whether by gift, right of survivorship, beneficiary designation, disclaimer or otherwise, unless the power of attorney provides otherwise.
(c) Gifts. Unless the power of attorney provides otherwise, a general grant of authority in a power of attorney to make gifts only authorizes the agent to make gifts of the principal’s property outright to, or for the benefit of, a person in an amount per donee not to exceed the federal gift tax annual exclusion amount (or twice that amount if the principal’s spouse agrees to gift splitting).
F. Liability of Agents
1. Generally. Existing Chapter 709 provides generally that an agent must observe the standards of care applicable to trustees and can be held liable to interested persons for damages resulting from a breach of fiduciary duty. The Act goes much further in describing the agent as a fiduciary who owes specific duties to the principal (see Section D above) and who can be held liable for improper acts or omissions. Furthermore, the Act provides that (a) absent a breach of duty to the principal, an agent is not liable if the value of the principal’s property declines and (b) an agent who acts in good faith is not liable to any beneficiary of the principal’s estate plan for failure to preserve the plan.
2. Damages and Costs. The Act clearly defines the scope of damages and costs recoverable for a breach of duty. Specifically, an agent who violates its duties is liable to the principal or the principal’s successors-in-interest for the amount required to restore the value of the principal’s property to what it would have been had the violation not occurred and to reimburse the principal or the principal’s successors-in-interest for the attorneys fees and costs paid from the principal’s funds on the agent’s behalf in defense of the agent’s actions.
3. Actions of Co-Agents. The Act imposes on an agent who has actual knowledge of a breach or imminent breach of fiduciary duty by another agent an obligation to take reasonable action to safeguard the principal’s best interests. If the agent in good faith believes the principal is not incapacitated, notifying the principal of the breach or imminent breach is sufficient action. Except as otherwise provided in the power of attorney, an agent who does not have actual knowledge of a breach or pending breach and who does not participate in or conceal a breach of fiduciary duty committed by another agent is not liable for the actions or omissions of the other agent.
4. Successor Agents. Under the Act, successor agents do not have a duty to review the conduct or decisions of predecessor agents. Absent actual knowledge of a breach of fiduciary duty by a predecessor agent, a successor agent does not have a duty to institute any proceeding against a predecessor agent or such agent’s estate for any actions or omissions as agent.
5. Exoneration. The Act also provides that a power of attorney may exonerate an agent from liability for any acts or decisions made by the agent in good faith and pursuant to the authority granted in the power of attorney. Such a provision is effective to the extent it (a) does not relieve the agent of liability for breach of a duty committed dishonestly, with improper motive, or with reckless indifference to the purpose of the power or the best interest of the principal and (b) was not inserted as a result of an abuse of a confidential or fiduciary relationship with the principal.
G. Third Persons
1. Acceptance. The Act imposes a requirement that a third person must accept or reject a power of attorney within a reasonable time. For financial institutions, four business days is presumed to be a reasonable time. For other third persons, reasonableness will depend on the circumstances and the terms of the power of attorney. The third person must accept the power of attorney as is, but may require the agent to execute an affidavit setting forth certain facts establishing the continuing validity of the power. A third person may also in good faith request an English translation of any power not wholly in English and an opinion of counsel as to any matter of law concerning the power of attorney.
2. Rejection. The Act also imposes a requirement that a third person who rejects a power of attorney must state in writing the reasons for the rejection. A third person is not required to accept a power of attorney if: (a) the third person is not otherwise required to engage in the transaction with the principal; (b) the third person has knowledge of the termination or suspension of the agent’s authority or the power of attorney; (c) a timely request by the third person for an affidavit, English translation or opinion of counsel is refused by the agent; (d) the third person believes in good faith that the power is not valid or the agent does not have authority; or (e) the third person has knowledge of a report to adult protective services stating a good faith belief that the principal may be subject to physical or financial abuse by the agent or someone acting for or with the agent.
3. Liability. A third person who, in violation of the Act, refuses to accept a power of attorney is subject to a court order mandating acceptance of the power of attorney and liability for damages, including attorney’s fees and costs, incurred in any proceeding that confirms the validity of the power of attorney or mandates its acceptance.
4. Reliance. A third person who in good faith accepts a power of attorney may rely upon the power and the actions of the agent which are reasonably within the scope of the agent’s authority. A third person who acts in reliance upon the authority granted to an agent will be held harmless by the principal for any loss or liability incurred as a result of actions taken before the receipt of notice that the agent no longer has authority. A third person who acts in good faith upon any representation, direction or action of the agent is not liable to the principal or the principal’s estate, beneficiaries or joint owners for such acts.
H. Judicial Relief
1. Generally. The Act more clearly defines the role of the courts in proceedings relating to powers of attorneys. Specifically, a court is empowered under the Act to construe or enforce a power of attorney, review the agent’s conduct, terminate the agent’s authority, remove the agent, and grant other applicable relief.
2. Who May Petition. The following persons are authorized under the Act to petition for judicial relief: (a) the principal or the agent; (b) a guardian, conservator, trustee or other fiduciary acting for the principal or the principal’s estate; (c) a person authorized to make health care decisions for the principal (if the principal’s health care is at issue); (d) any other interested person who can demonstrate that they are interested in the welfare of the principal or has a good faith belief that the court’s intervention is necessary; (e) a governmental agency having regulatory authority to protect the principal’s welfare; and (f) a person asked to honor the power of attorney.
3. Fees and Costs. In any judicial proceeding instituted pursuant to the Act, the court is required to award reasonable attorney’s fees and costs.
