Thursday, July 18, 2013

Recent Changes in Michigan's Power of Attorney Law

As our clients get older and making decisions becomes more of a challenge for any number of reasons, it becomes even more important to have a properly drafted Power of Attorney authorizing others to make financial decisions on their behalf. Last year, the Michigan Legislature adopted a new Durable Power of Attorney (POA) statute, MCL 700.5501, effective after October 1, 2012, which while not invalidating documents executed prior to that date, applies to documents created after that date.
The requirements of the new statute include:
  1. The POA must be signed in the presence of two witnesses, neither of whom is the attorney-in-fact, both of who must sign the POA, or the POA must be acknowledged before a notary public.
  2. The attorney-in-fact must now sign an acknowledgment or acceptance, with statutorily prescribed language, before the attorney can act. This acknowledgment includes an understanding that there are specific limitations to the attorney-in-fact's powers, that the attorney-in-fact must maintain proper records with respect to receipts, disbursements and investments, and that the attorney-in-fact may be liable for any damage or loss to the principal.
  3. The attorney-in-fact cannot make a gift of any of the principal's assets, unless specifically provided for in the POA.
  4. Unless the POA specifically provides that, the attorney-in-fact cannot create an account or transfer an asset in joint tenancy between the principal and the attorney-in-fact.
  5. The POA may exonerate the attorney-in-fact of any liability to the principal for breach of fiduciary duty, however the statute specifically exempts actions committed by the attorney-in-fact in bad faith or with reckless indifference.
  6. The new statute specifies that it does not apply to a POA executed before October 1, 2012 or executed in a business setting.
     The Michigan Trust Code (MCL 700.7602 (5)) also contains language that with respect to a Trust the "settlor's powers with respect to revocation, amendment, or distribution of trust property may be exercised by an agent under a durable power of attorney only to the extent expressly authorized by the terms of the trust or the power of attorney".
     With the changes in the law, more thought and effort will be needed to determine what a client wants or needs with respect to the provisions drafted in the client's POA. These changes will become especially important if the POA is intended to be eventually used for Medicaid or other sophisticated planning. As always, a thorough review by experienced advisors is highly recommended..

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