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More Thoughts On Our New Durable Power of Attorney Law

In an earlier post I reported on changes to MCL 700.5501 brought about by Public Act 141 of 2012.  In this post I would like to point out some other intriguing aspects of this law.  A link to the law may be found at in that earlier post of June 12, 2012.

Planners need to be mindful of how these new developments impact planning options by a principal who later becomes incompetent, and the extent to which the documents created may limit the planning tools available to the agent, and the exposure of the agent to liability.

First, and most importantly, section 3(d) provides:

“The attorney-in-fact shall not make a gift of all or any part of the principal’s assets, unless provided for in the durable power of attorney or by judicial order.”

This section addresses one of most difficult issues of FPOA drafting, whether, and to what extent, to authorize an agent to make gifts.  Heretofore the law on this issue was vague. MCL 700.2114 can be extrapolated to mean that an agent may not gift to themselves without express authority, but this new law goes much further, and becomes much more of an obstacle to things like Medicaid planning by an agent.

Commonly, form FPOAs used by too many practitioners will include no expression on gifting, or will include a provision that limits gifting the federal annual exclusion amount.  These documents are likely generated without much discussion or consideration of the important role gifting plays in estate planning, VA benefits planning and Medicaid eligibility planning.  For planners interested in an FPOA that authorizes broad gifting powers, a form of such a document I use is available on the ICLE website forms bank, and as an exhibit in my ICLE book on Medicaid Planning

Where gifting is allowed, it is often best to limit that authority to gifts made in a manner consistent with the principal’s existing estate plan.

That’s not to say that gifting is always a good thing.  For many people, and for many reasons, gifting is not appropriate, and such documents should either remain silent on the issue or expressly preclude gifting by an agent.

Notably, the new law does not address the second leg of this issue, whether an agent can modify a revocable trust created by an incompetent settlor.  One would presume however, that Michigan law would not sanction such actions unless expressly authorized by the document.  Again, see my ICLE form for suggested language.

Another important issue not addressed expressly in the new law is the question: Are transfers from accounts jointly owned between the principal and agent, gifts by the agent?  Presumably if the joint ownership is created by a competent principal, the agent/co-owner’s removal of funds from such an account would not be a violation of the statute because it would not be an act of the agent in their fiduciary capacity.  That is not to say that such action, if taken, and where the agent did not contribute to the account, and/or where the joint ownership was established for convenience purposes, would not be actionable.

Section 2(e of the new law does say however that:

“Unless provided in the durable power of attorney or by judicial order, the attorney-in-fact, while acting as attorney-in-fact, shall not create an account or other asset in joint tenancy between the principal and the attorney-in-fact.”

Also important is section 2(g) of the new law, it provides:

“In the durable power of attorney, the principal may exonerate the attorney-in-fact of any liability to the principal for breach of fiduciary duty except for actions committed by the attorney-in-fact in bad faith or with reckless indifference.”

This section authorizes exculpation of the agent, but with a “bad faith” floor.  The Medicaid planning power of attorney included in my ICLE materials referenced above, provides such exculpation provisions, which planners may want to consider.

General Perry’s Terror Clause

I just filed a brief in an appeal that may be of interest to some of you.

The case involves the estate of Brigadier General Miller Perry, who died leaving a restated trust.

The restatement of the trust altered the beneficial shares.  One of the beneficiaries whose share of estate was reduced by the restatement filed a “Petition to Determine Probable Cause,” alleging that the restatement was the product of undue influence and requesting that the court determine that this beneficiary had probable cause to institute a trust contest.

I represented the Trustee.  In our response I asked the trial court to determine that there was no probable cause to contest the trust, and also that the filing of this Petition to Determine Probable Cause was a “contest” sufficient to trigger the forfeiture of interest provided in the “no contest” clause in General Perry’s Trust.

This issue arises because of the changes brought about by MCL 700.7113 of the Michigan Trust Code.  As you may recall, this section of the Trust Code says that a no contest clause will not be enforced by a trial court if the contestant had probable cause to initiate the action.  This statute changed Michigan law when it was adopted in 2010.  Before the adoption of the Trust Code, Michigan law strictly enforced no contest clauses.  Nacovsky v. Hall (In re Griffin), 483 Mich 1031, 766 NW2d 613 (2009). [I am proud to note that the Griffin case was successfully litigated by John Bos of our office.]

The issue before the Court of Appeals is whether the law allows a litigant a “free bite” at the apple.  That is, whether, by calling a pleading a Petition to Determine Probable Cause, the litigant/beneficiary is able to engage in discovery and have a hearing without being subject to the forfeiture of interest provisions of the no contest clause.  I argue that this is not the law, and should not be the law.

In my brief, among other things, I cite California’s experience.  California allowed parties in trust contests to seek declaratory judgment on this point by statute, but later determined that this process only promoted litigation, and repealed that law.

Stay tuned.

Revised MCL 700.5501 Mandates Acceptance and Other Formalities

The passage of Public Act 141 of 2012 is significant to estate planners in that it requires that an agent appointed under a standard power of attorney for finances (FPOA) to sign an acceptance before acting, and for such documents to be witnessed by two people and notarized.

For planners who have not historically included an acceptance with their financial power of attorneys, they need to start.  For those who have, they need to alter their acceptances to conform to the statutorily required form.  An example of this form can be found at:

http://www.mielderlaw.com/professional-resources

Michigan law has long required acceptances for medical power of attorneys/patient advocate designations and this law does not change that.

The law should not impact the validity of existing FPOA’s that have nonconforming acceptances or no acceptances.  Specifically, MCL 700.5501(7) provides that the new requirements are not applicable to documents created before October 1, 2012. Of course, problems may arise in the future with institutions that refuse to accept documents without acceptances.  Accordingly, best practice may be to provide clients using existing FPOA’s with new acceptances, or otherwise make these acceptances available.

There are exceptions for power of attorneys used in business dealings and other unique situations, also described in MCL 700.5501(7).

The new law will be found in EPIC at 700.5501.  It is immediately effective.

To review the legislation, go to: http://www.legislature.mi.gov/documents/2011-2012/publicact/pdf/2012-PA-0141.pdf