BILL ANALYSIS
SB 1038
Page 1
Date of Hearing: June 15, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 1038 (Harman) - As Amended: April 26, 2010
PROPOSED CONSENT
SENATE VOTE : 31-0
SUBJECT : POWER OF ATTORNEY: REMEDIES
KEY ISSUE : SHOULD THE CURRENT EXEMPTION SHIELDING AN
ATTORNEY-IN-FACT FROM LIABILITY FOR LOSSES TO THE PRINCIPAL'S
PROPERTY WHEN THE ATTORNEY-IN-FACT IS UNCOMPENSATED BE
ELIMINATED TO ENSURE APPROPRIATE REMEDIES EXIST FOR BREACHES OF
DUTY BY ATTORNEYS-IN- FACT WHETHER OR NOT THEY WERE COMPENSATED
FOR THEIR SERVICES?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This non-controversial bill is sponsored by the Conference of
California Bar Associations (CCBA). The Power of Attorney Law
creates various duties and requires an attorney-in-fact to
observe the standard of care that would be observed by a prudent
person dealing with property of another, or if an
attorney-in-fact has special skills he or she shall observe the
standard of care that would be observed by others with similar
skills. However, existing law provides that an attorney-in-fact
is not liable for a loss to the principal's property if he or
she is not compensated, unless the loss results from his or her
bad faith, intentional wrongdoing, or gross negligence. This
bill would delete this provision. The bill would provide that
if the attorney-in-fact breaches a duty pursuant to the Power of
Attorney Law he or she can hereafter be charged with interest
for any loss or depreciation in value of the property, any
profit made through the breach, or any profit that would have
accrued to the principal if the loss or profit is a result of
the breach. The bill would allow the court, in its discretion,
to excuse the attorney-in-fact if he or she acted reasonably and
in good faith, or if the attorney-in-fact acted in bad faith, he
or she can be held liable for twice the value of the property
SB 1038
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recovered. There is no known opposition to the measure.
SUMMARY : Seeks to delete existing law's exemption providing
that an attorney-in-fact is not liable for losses to the
principal's property when the attorney-in-fact is not
compensated. Specifically, this bill :
1)Provides that a non-compensated attorney-in-fact will be held
liable for breaches of duty, regardless of whether the breach
was made in bad-faith or error.
2)Authorizes the court, in its discretion, to excuse the
attorney-in-fact from liability if the attorney-in-fact acted
reasonably and in good faith under the circumstances known to
the attorney-in-fact.
3)Provides that an attorney-in-fact may be held liable for twice
the value of the property recovered by an action to recover
the property or for surcharge.
EXISTING LAW :
1)Provides that a principal can grant to an attorney-in-fact the
authority to act on the principal's behalf regarding the
principal's real or personal property. (Probate Code Section
4123. Hereafter all such references are to this code unless
otherwise noted.)
2)Provides that a designated attorney-in-fact has no duty to
exercise the authority granted in the power of attorney and is
not subject to the other duties of an attorney-in-fact,
regardless of whether the principal has become incapacitated,
is missing, or is otherwise unable to act. (Section 4230.)
3)Provides that if an attorney-in-fact is not compensated, the
attorney-in-fact is not liable for a loss to the principal's
property unless the loss results from the attorney-in-fact's
bad faith, intentional wrongdoing, or gross negligence.
(Section 4231.)
COMMENTS : In support the author writes:
There has been a sharp increase in recent years of
predators acting under Powers of Attorney who are stealing
money and property from disabled adults or the elderly.
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Attorneys-in-fact are entrusted with enormous power and
should be held accountable when they breach [their] duties
or fail to adhere to the standards set forth in the Probate
Code. However, there is no specific provision in the
Probate Code that sets forth the liability for
attorneys-in-fact who breach their statutory, legal and/or
fiduciary duties under the code, or which addresses the
enhanced liability of an attorney-in-fact who knowingly or
wrongfully misappropriates the monies of the principal. .
. .
Current law provides a presumption against liability for
uncompensated attorneys, but provides no definition or
guidance as to what constitutes 'compensation' under the
meaning of the statute. A frequent example of how the
problem occurs in real life is where the attorney in fact
does not receive regular payment for his or her services,
but there are numerous cash withdrawals that cannot be
accounted for, or unsupported "reimbursements" to the
agent. A contrary example is the good friend who accepts
de minimus or in-kind compensation (e.g., meals) in return
for the assistance he or she provides or to offset a
sacrifice he or she has made; it seems inapposite to hold
such a person to the same standard as a professional
fiduciary. SB 1038 would remove this confusing and
exploitable distinction, and instead leave it to the court
to determine the proper standard of liability.
The Executive Committee of the Trusts and Estates Section of the
State Bar supports the bill since it "provides a means to
protect agents under powers of attorney from liability in
appropriate cases by giving courts discretion to excuse the
attorney-in-fact in whole or in part from liability."
A power of attorney is executed by someone (the principal) who
designates a legal representative (his or her agent) to act on
his or her behalf. This legal mechanism is particularly useful
during estate planning; the principal can designate who will
make legal decisions on his/her behalf if the principal becomes
incapacitated or unable to make decisions. Although the
principal can provide for compensation of an attorney-in-fact,
there is a statutory presumption of good faith and a resulting
exemption from liability for attorneys-in-fact who are not
compensated. Accordingly, trusts and estates attorneys are
reporting an unfortunate increase in predatory attorneys-in-fact
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agreeing to serve on behalf of the principal without
compensation - and then skimming large sums of money from the
principal's estate. This bill is intended to provide
protections for principals and their beneficiaries from
predatory attorneys-in-fact by removing non-compensatory
attorney-in-fact exemptions and providing circumstances under
which attorneys-in-fact will be held accountable for breaches of
duty.
REGISTERED SUPPORT / OPPOSITION :
Support
Conference of California Bar Associations
Trusts and Estates Section of the State Bar
Opposition
None on file
Analysis Prepared by : Drew Liebert / JUD. / (916) 319-2334