Alabama Adopts Uniform Power of Attorney Act

Posted on September 10, 2012

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Within the past year Alabama has joined several other states in adopting a Uniform Power of Attorney Act.  While this new Act does not affect powers of attorney (POAs) executed prior to January 1, 2012, it does make some significant changes to the law that governs POAs executed on or after that date.  Understanding the role of an agent under a POA in light of this new law is vital both for estate planning and business purposes.

A POA allows an individual (called the principal) to designate another individual (called the agent or attorney-in-fact) to carry out certain actions on the principal’s behalf.  A POA can be general, covering a broad range of financial and administrative matters, or special, authorizing the agent to handle one specific transaction, such as the sale of a house.  In addition, a POA can be durable, meaning that it remains effective in the event the principal becomes incapacitated, or it can be non-durable, meaning that it ceases to be effective in the event the principal becomes incapacitated.  One key change enacted by the new law is that, unless a POA specifically states otherwise, it is deemed to be durable.

A durable POA can either become effective immediately upon its execution or it can “spring” into effect upon the principal’s incapacity.  According to an article by the Birmingham News, “If the POA provides it is not to become effective until the principal’s disability, incompetency, or incapacity, and the POA does not designate a person to make that determination [of when incapacity has occurred], the Act sets forth who can make that determination.  Further, the term ‘incapacity’ in the new Act had been defined to include persons who are missing, detained (including persons in a penal system), or persons who are outside the United States and are unable to return.”

The new Act provides a list of powers that are deemed to be included when a POA includes language giving the named agent the general power “to do all acts that a principal could do” (or similar language) with respect to real property and tangible personal property; stocks and bonds; insurance and annuities; banks and other financial institutions; operation of an entity or business; estates, trusts and other beneficial interests; claims and litigation; benefits from governmental programs or civil or military service; retirement plans, and gifts.  For example, the statutes dealing with general grants of authority for real property make it clear that an agent can sell, exchange convey, mortgage, release, partition, pledge as security, manage or conserve property, develop, make repairs or alterations, etc.—everything the principal him or herself could do with the real property (if he or she possessed capacity).

The Act also sets forth certain powers that must be included specifically in the POA or the agent will not possess such powers.  Examples of powers that must be specifically granted include, among other things, the ability to create or change a beneficiary designation, the ability to create or change rights of survivorship, and the ability to exercise fiduciary powers that the principal has the authority to delegate.  The Act assumes that the average person would not want his or her agent to have these powers, but these limitations can have real effect on business, real estate, and estate planning goals that an agent may want to implement on the principal’s behalf.  For example, without a specific grant of authority, an agent could not create a joint tenants with rights of survivorship arrangement for the residence of the principal and his or her spouse.

Another provision of the new Act that impacts business and real estate dealings requires that a copy of a POA be treated the same as the original.  POAs sometimes have to be recorded with the Judge of Probate to effect a real estate transaction relying upon a POA.  In such transactions, title insurance companies require that the original POA be recorded with the Judge of Probate.  It will be interesting to see if title insurance companies change their practice of requiring that the original POA be recorded in light of this change in the law.

An interesting aspect of the new Act is that it includes protections for agents and parties relying upon POAs.  Agents who act in good faith without having knowledge of the termination or revocation of the POA are not liable for their acts within the scope of their authority.  Parties accepting and acting on the POA without knowledge that it is in fact void or invalid are exonerated from any liability that stems from effecting the transaction that relies upon the POA.   Another interesting aspect of the new Act is that it includes penalties for persons who under certain circumstances refuse to effect transactions relying upon POAs.

Ideally, all individuals over the age of majority should have a durable power of attorney in place, naming someone to handle their affairs in the event they are unable to do so for themselves.  However, opinions vary as to how broad the authority given by a durable POA should be.  If you are executing a POA, it is important for you to review to the powers given in detail, and, more importantly, to think with great care about the person(s) you choose to designate to act on your behalf.

Russell Cunningham
Cunningham Firm, LLC

Brooke Everley
Everley Law, LLC

 

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