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..

Alan Ferrara

The Importance of Talking about your Estate Plan

     One of the more difficult aspects of working with clients to develop their estate plan is helping clients become comfortable discussing their goals and concerns for what happens to their estate after they pass away. This comfort is important because it is impossible to draft documents that truly achieve the client's goals when the client is unable to articulate those goals. Once clients have an estate plan it is also important that they become comfortable discussing that plan with those people whom they have trusted with its administration.

     After going through the initial process of creating an estate plan, many clients put those documents in the drawer and never mention them to their children to the people they have named in the documents to make decisions, except perhaps to tell them where the documents are located. This failure to discuss the client’s posthumous wishes can cause unexpected difficulties in administering an estate and hurt feelings of beneficiaries who do not understand why their parents made certain choices. For example, a client may choose to provide that assets are held in trust for their grandchildren as opposed to making gifts to their children. This may leave the children wondering if they've done something that made their parents reluctant to trust them, when the clients goal was to remove the burden of saving for college costs from their children in order to make their lives easier.

     In another scenario, a client may choose one child over the others to act as Successor Trustee. While the parent’s goal was to appoint the child who could most efficiently administer the estate, perhaps due to geographic location or flexibility of their schedule, the children are left wondering what they did “wrong.”

     The reasons clients have for distributing their wealth the way they do are as disparate as the number of estate plans. By taking the time to discuss an estate plan with the successor designees and beneficiaries who will be administering benefits from that plan, clients provide guidance and clarity that helps their loved ones achieve the clients' underlying goals.

     Estate planning is a ongoing process and communication is a major part of the process. While clients may not wish for their beneficiaries to know the full scope of the bequests made in their documents, by taking the time to discuss the scope and reasoning behind an estate plan clients can influence the lives of their beneficiaries with more than the monetary impact of their gifts.

Matt Ferrara