There are new rules in Michigan for financial powers of attorneys. All financial powers of attorney that you sign after September 30, 2012 must comply with the new rules. If you don’t, your financial power of attorney may not be effective and may not be able to be used to handle your financial affairs.
Probably the most common type of financial power of attorney that is used is a general durable power of attorney. This is a legal document in which you appoint an agent or agents to act on your behalf with regard to all of your property and financial affairs. This document can be effective either when signed or when you become mentally incapacitated.
With your general durable power of attorney, you direct that your agent(s) can do just about anything that you could do with regard to your finances, all without court supervision. Your agent(s) can collect your income, pay your bills, deal with governmental agencies and generally handle all your stuff.
If you do not have a financial power of attorney, no one would have the legal authority to act on your behalf during your incapacity without court involvement. In order to make decisions regarding your property, your loved ones would have to file in probate court to have someone appointed. In this filing, the probate court judge first makes a determination whether you are legally incapacitated and cannot handle your own affairs. If you are legally incapacitated, the judge then appoints a representative to handle your property, called a conservator.
Once your conservator is appointed, the judge then decides what your conservator can do. The court may include in the appointment order, that any expenditures above a certain amount, such as $200, require court approval. It could take over a month to get an expense approved by the court. In addition, when an attorney is used for these approval proceedings, it could cost more in legal fees than the expense being requested for approval.
Having a court involved in your financial affairs is not the result that you would likely want. Most people would rather have their family or someone they choose making these decisions, instead of someone who does not know them. One of the best ways to avoid probate court involvement is to have a financial power of attorney.
If you sign your financial power of attorney after September 30, 2012, it must be witnessed by two witnesses or a Notary Public, or both, who should also sign. This is something that most attorneys, including myself, have been doing for years. This is just a requirement to add protection for you to reduce the risk of forged or coerced documents.
In addition, your agent(s) cannot use the power of attorney to make gifts of any of your assets to anyone or make any assets or accounts joint with your agent(s) unless you have given your agent(s) the express power to do so. This has effectively been the court-made law in Michigan for years. Whether your financial power of attorney was signed before or after September, 30, 2012, if you do not have adequate gifting powers in your financial power of attorney and you went into a nursing home, your agent(s) may have to spend your assets down on nursing home care. Your agent(s) would be unable to protect your assets for your spouse or other loved ones, who would not receive your assets that you wanted them to get.
The new statute also provides that if you want to pay your financial power of attorney agent(s), they can only be paid reasonable compensation for acting as your agent if you specifically indicate such in your power of attorney.
Another requirement of the statute is that your agent(s) named in your financial power of attorney cannot act on your behalf unless they sign an eight paragraph acknowledgment. This acknowledgment is very similar to the acceptance of patient advocate designation by patient advocates that has been mandatory in Michigan since 1989. Although this is a requirement under the new statute, your agent(s) can still act under your power of attorney, even if they don’t sign the acknowledgment. This part of the statute is classic government: “No you can’t. Yes you can.”
What does this all mean for you? Well, if your financial power of attorney was signed before October 1, 2012 and complied with the old law, it is supposed to be ok. However as more and more financial institutions see and use the forms under the new statute, they may not honor the old forms. Your agent(s) would then have to go to probate court to force the financial institutions to honor your financial power of attorney.
A better option is to just bite the bullet and go to your estate planning attorney to have your financial powers of attorney re-drafted to comply with the new statute. The chance of your agent(s) meeting with resistance from financial institutions would be lower. And the chances that your wishes would be followed, are higher.
Michigan is not the only state with a new financial power of attorney statute. Florida has adopted a new financial power of attorney statute, effective a year ago, October 1, 2011. If you are a snowbird wintering in Florida and are a Florida resident, you may want to consider updating your Florida financial power of attorney with your Florida attorney.
Your estate planning documents are not static. They should change with you, your family, the law and your attorney’s experience. Your estate plan should be reviewed at least annually. Some of our clients elect to do their annual reviews by themselves. Other of our clients, sign up for one of our annual review programs.
When you review and update your plan and documents annually, you have a greater likelihood that you stay in control of your property while you’re alive and well, that you and your loved ones are provided for in the event of your mental disability, and that when you’re gone, you can give what you have to whom you want when you want and the way you want, and all the while have the best shot at saving taxes, fees and costs.
By: Matthew M. Wallace, CPA, JD
Published edited October 7, 2012 in The Times Herald newspaper, Port Huron, Michigan as: State has new financial power of attorney rules