BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Noreen Evans, Chair 2011-2012 Regular Session AB 1082 (Gatto) As Amended May 17, 2011 Hearing Date: June 21, 2011 Fiscal: No Urgency: No TW SUBJECT Powers of Attorney: Statutory Form Power of Attorney DESCRIPTION Existing law provides two methods under which an individual can grant authority to another person to make legal and financial decisions for the individual: (1) a non-form power of attorney; and (2) a Uniform Statutory Form Power of Attorney (Form POA). Existing law limits the grant of specific authorities in non-form powers of attorney. This bill would extend these limitations on grants of specific authorities to Form POAs. This bill also would clarify and remove inconsistencies between the non-form and statutory form powers of attorney. BACKGROUND Existing law authorizes an individual to appoint another as his or her attorney-in-fact or agent to act on his or her behalf in legal matters. Powers of attorney are particularly useful when an individual becomes incapacitated or otherwise unable to make legal and financial decisions for him or herself. In 1994, the California provisions for powers of attorney were removed from the Civil Code, reorganized, and recast under the Probate Code. (SB 1907 (Campbell, Ch. 307, Stats. 2004).) At that time, the California Law Revision Commission (CLRC), the sponsor of SB 1907, stated that the reorganization was necessary because the power of attorney provisions had been inserted piecemeal throughout the Civil Code. SB 1907 established two methods of powers of attorney, a non-form power of attorney and a statutory form power of attorney, with different requirements (more) AB 1082 (Gatto) Page 2 of ? for each. The state adopted the Form POA to make it easier for people to execute a power of attorney without incurring the legal expense of hiring a lawyer for this purpose. Since 1994, the Form POA has changed little. SB 158 (Machado, Ch. 251, Stats. 2005) revised the Form POA to remove the requirement of the principal's Social Security Number to address increased reports of identity theft. Although the provisions regarding non-form power of attorney have been revised to address elder abuse (i.e., limiting inappropriate gifts made by an attorney-in-fact), the Form POA still does not have the same protections from potential elder abuse as non-form powers of attorney. In 2006, the National Conference of Commissioners on Uniform State Laws (NCCUSL) adopted the Uniform Power of Attorney Act, which distinguishes between grants of specific authority that require express language in a power of attorney and grants of general authority. NCCUSL modeled the specific grant of authority provision after California's Probate Code Section 4262, which provides specific grants of authority for non-form powers of attorney. NCCUSL recognized that assigning powers of attorney over a principal's property and estate plan can have devastating consequences to the principal, and certain powers should be specifically enumerated so that the principal is clear as to which powers are being granted. This author-sponsored bill would extend to the Form POA the protections over grants of authority contained in the non-form powers of attorney statutes. This bill also would clarify and remove inconsistencies between the non-form and statutory form powers of attorney. CHANGES TO EXISTING LAW 1.Existing law authorizes an individual to appoint another as his or her attorney-in-fact or agent, to act in his or her stead in legal matters. (Prob. Code Sec. 4000.) Existing law provides limits on general and specific powers that can be granted by an individual to another in a power of attorney. (Prob. Code Sec. 4200 et seq.) Existing law provides that a person may use a Form POA to appoint another as his or her attorney-in-fact or agent, to act in his or her stead in legal matters. The appointment AB 1082 (Gatto) Page 3 of ? must meet specified requirements and must be executed according to a prescribed procedure. (Prob. Code Sec. 4400 et seq.) Existing law does not apply the same limits on specific grants of authority in non-form powers of attorney to Form POAs. (Prob. Code Sec. 4260.) This bill would provide that the limits on grants of authority to attorneys-in-fact contained in Probate Code Section 4200 et seq., with exceptions, would apply to Form POAs. 2.Existing law provides that a power of attorney may not be construed to grant authority to an attorney-in-fact to perform any of the following acts unless expressly authorized in the power of attorney: create, modify, or revoke a trust; fund with the principal's property a trust not created by the principal or a person authorized to create a trust on behalf of the principal; make or revoke a gift of the principal's property in trust or otherwise; exercise the right to make a disclaimer on behalf of the principal; create or change survivorship interests in the principal's property or in property in which the principal may have an interest; designate or change the designation of beneficiaries to receive any property, benefit, or contract right on the principal's death; and make a loan to the attorney-in-fact. (Prob. Code Sec. 4264.) This bill would add to the list above and require the individual to expressly grant to the attorney-in-fact the power to terminate a trust or reject, disclaim, release, or consent to a reduction in, or modification of, a share in, or payment from, an estate, trust or other fund on behalf of the principal. 1.Existing law provides language required to be contained in a Form POA. (Prob. Code Sec. 4401.) This bill would specify in the required notice language of the Form POA that additional powers available under the Probate Code may be specifically listed on the Form POA. AB 1082 (Gatto) Page 4 of ? 2.Existing law provides that, unless there is a conflicting provision in the statutes governing Form POAs, in which case the provisions of the Form POA statutes govern, the provisions regarding non-form powers of attorney apply to Form POAs. (Prob. Code Sec. 4407.) This bill would provide that the non-form power of attorney provisions apply to Form POAs except when there is a conflicting provision under the Form POA statutes or when a provision under the non-form power of attorney statutes expressly states that the provision does not apply to Form POAs. 3.Existing law provides that a person may grant to an attorney-in-fact specific authority regarding insurance and annuity transactions, including the ability to name the attorney-in-fact as a beneficiary of the insurance or annuity contract. (Prob. Code Sec. 4457.) This bill would remove the ability of the attorney-in-fact to name himself or herself as a beneficiary of an insurance or annuity. 4.Existing law provides that a person may grant to an attorney-in fact the ability to accept, reject, disclaim, receive, receipt for, sell, assign, release, pledge, exchange, or consent to a reduction in or modification of a share in or payment from the fund established under a trust, probate estate, guardianship, conservatorship, escrow, custodianship, or other fund from which the person is, may become, or claims to be entitled, as a beneficiary, to a share or payment. (Prob. Code Sec. 4458.) This bill would remove the grant of authority to an attorney-in-fact to reject, disclaim, release, or consent to a reduction in or modification of a share in or payment from the fund. This bill would authorize an attorney-in-fact to disclaim a detrimental transfer to the person with the approval of the court. 5.Existing law authorizes an attorney-in-fact to perform various powers, as specified, with respect to the personal and family maintenance of the person. (Prob. Code Sec. 4460.) This bill would add to these specified powers that the AB 1082 (Gatto) Page 5 of ? authority of the attorney-in-fact to provide for the personal and family maintenance of the person is not dependent upon or limited by any other grant of authority or limitation to make gifts on the person's behalf. 6.Existing law provides that, with respect to a retirement plan, among other things, an attorney-in-fact may be given authority to designate beneficiaries. (Prob. Code Sec. 4462.) This bill would delete this provision. 7.Existing law provides that a Form POA does not empower the agent to modify or revoke a trust created by the principal unless that power is expressly granted by the power of attorney. (Prob. Code Sec. 4465.) This bill would repeal and replace this provision and declare that the Form POA does not empower the attorney-in-fact to take any of the actions specified under Probate Code Section 4262 unless the Form POA expressly grants that authority to the attorney-in-fact. COMMENT 1. Stated need for the bill The author writes: The statutory form power of attorney is sometimes used by lawyers but is more often used without the assistance of a lawyer. The common use of a statutory form powers of attorney without legal advice creates both a greater potential for abuse by unscrupulous persons and also a greater chance that the principal may unintentionally grant his or her agent broader powers than the principal realizes or intends. The purpose of this bill is to provide the same protections in a statutory form power of attorney as for all other powers of attorney under California law to be sure that certain potentially abusive powers to dispose of the principal's property during lifetime or at death are not given to an agent unless the power of attorney expressly grants that power to the agent. 2. Limiting powers an individual may grant to another under a Form POA AB 1082 (Gatto) Page 6 of ? This bill would extend current limitations on granting authority to another person that apply to a non-form power of attorney to also apply to the Form POA. Existing law provides that certain powers must be specifically enumerated in a non-form power of attorney. (Prob. Code Sec. 4264.) Further, existing law provides that a power of attorney may not authorize an attorney-in-fact to make, publish, declare, amend, or revoke the individual's will. (Prob. Code Sec. 4265.) The Executive Committee of the Trusts and Estates Section of the State Bar of California (TEXCOM), in support of this bill, argues that: California Probate Code ÝSection] 4264 lists certain actions that are so important, or so subject to possible abuse, that they cannot be authorized in a power of attorney unless they are specifically spelled out in the power of attorney document. These restrictions generally involve the ability to dispose of the principal's property, such as the ability to make a gift, to disclaim assets, to make or change a beneficiary designation . . . or to change survivorship interests in the principal's property, or to make, amend or revoke a trust. . . . ÝB]ecause the statutory form power of attorney is most often used by lay persons without legal advice, it is particularly important that the simplified statutory form not grant very broad powers to an agent without the principal's knowledge or informed consent. The Form POA provides that an individual granting authority to an attorney-in-fact may simply initial next to a broad category of financial and legal transactions in order to transfer power of authority. These broad categories include real property transactions, tangible personal property transactions, banking and other financial institution transactions, and estate, trust, and other beneficiary transactions. The individual filling out the Form POA and initialing next to these categories may or may not have considered the ramifications of authorizing such broad powers to another. Certain actions that fall under these broad categories are transferring real or personal property into a trust created on behalf of beneficiaries, changing survivorship interests in the person's property, and making a loan to the attorney-in-fact. Non-form powers of attorney provide that these specific powers must be expressly enumerated on the power of attorney to be AB 1082 (Gatto) Page 7 of ? valid. Yet, the Form POA only prohibits an attorney-in-fact from modifying or revoking the individual's trust. (Prob. Code Sec. 4266.) Accordingly, under the current Form POA, an attorney-in-fact could create a trust to be funded with the individual's real and personal property and name the attorney-in-fact's relatives as the beneficiaries. The attorney-in-fact could also loan to himself or herself money from the individual's bank account. These actions taken by the attorney-in-fact may or may not have been considered by the individual when he or she executed the Form POA. This bill would address these situations by requiring the individual to specifically list these powers on the Form POA in order for the attorney-in-fact to take these actions on the individual's behalf. A power of attorney is operative when the individual is incapacitated or unable to make legal and financial decisions. A layperson filling in the Form POA at the direction of the proposed attorney-in-fact may be the subject of elder or dependent adult financial abuse. To provide protection for these situations, this bill would require, pursuant to the same limitations as for a non-form power of attorney, express enumeration in the Form POA in order to grant these specific powers. Support : Executive Committee of the Trusts & Estates Section of the State Bar of California Opposition : None Known HISTORY Source : Author Related Pending Legislation : None Known Prior Legislation : SB 1907 (Campbell, Ch. 307, Stats. 2004) See Background. SB 158 (Machado, Ch. 251, Stats. 2005) See Background. Prior Vote : Assembly Floor (Ayes 78, Noes 0) Assembly Judiciary Committee (Ayes 10, Noes 0) AB 1082 (Gatto) Page 8 of ? **************