BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 1038 (Harman)
As Amended April 26, 2010
Hearing Date: May 4, 2010
Fiscal: No
Urgency: No
TW:jd
SUBJECT
Power of Attorney: Duties
DESCRIPTION
This bill, sponsored by the Conference of California Bar
Associations (CCBA), would 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. This bill would provide the circumstances under
which an attorney-in-fact is chargeable with breaches of duty.
BACKGROUND
A power of attorney is executed by someone (principal) to
designate a legal representative (agent) to act on their behalf.
This 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 resulting exemption from liability for
attorneys-in-fact who are not compensated. Accordingly, trusts
and estates attorneys are reporting an increase in predatory
attorneys-in-fact agreeing to serve on behalf of the principal
without compensation; these attorneys-in-fact instead skim large
sums of money from the principal's estate.
Principal/agent regulations were largely organized under the
Civil Code. SB 1907 (Campbell, Chapter 307, Statutes of 1994)
was enacted under the Probate Code to replace the incomplete and
disorganized collection of power of attorney statutes located in
(more)
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the Civil Code. This legislation has not been updated since it
was first enacted.
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.
CHANGES TO EXISTING LAW
Existing law 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. (Prob.
Code Sec. 4123.)
Existing law 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. (Prob. Code Sec. 4230.)
Existing law 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. (Prob. Code Sec. 4231.)
This bill 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.
This bill 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.
This bill provides that an attorney-in-fact shall be held liable
for twice the value of the property recovered by an action to
recover the property or for surcharge.
COMMENT
1. Stated need for the bill
The author writes:
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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.
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 of California 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."
2. The bill clarifies liability of the attorney-in-fact
Existing law creates confusion with respect to those who are
uncompensated and exempt from liability. When the principal
designates in the power of attorney an amount of compensation to
be paid to the agent, the agent is considered "compensated."
However, when the agent is taking money from the principal
without his/her knowledge, the agent is being compensated but
will not be liable unless 1) the principal did not designate
compensation in the power of attorney document and 2) the
attorney-in-fact was shown to have acted in bad faith,
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intentional wrongdoing, or gross negligence. In order to close
this loophole and hold bad actors accountable, this bill removes
the issue of compensation and holds all attorneys-in-fact liable
for breaches of duty. The bill also provides that a court can
excuse the attorney-in-fact from liability for reasonable acts
taken in good faith under the circumstances known to the
attorney-in-fact. With these new provisions of liability, the
bill helps to clarify the law as applied to attorneys-in-fact.
3. Concern regarding volunteer agents as opposed to compensated
fiduciary standards
As introduced, this bill set out categories of the breach of
"fiduciary duty" as applied to the attorney-in-fact. Concern
was raised by the San Diego County Bar Association that there
are policy reasons to hold a volunteer agent to a standard below
that of a compensated fiduciary. Further, specifying a
"fiduciary duty" implies the attorney-in-fact holds a duty to
the corpus of the estate and its presumed beneficiaries. For
this reason, the author amended the bill to remove "fiduciary"
from the breach requirement.
4. Persons unwittingly assigned as the attorney-in-fact will not
be held liable for inaction
This bill removes the exemption from liability of
attorneys-in-fact for agents who are not compensated and makes
an attorney-in-fact liable for losses or depreciation of
property, or for profit gained by the attorney-in fact as a
result of a breach of duty. One concern of removing this
exemption is that the unknowing or unwilling attorney-in-fact
will be held liable for non-action with respect to the
principal's real or personal property. However, Probate Code
Section 4231 provides protections for a person who has been
designated an attorney-in-fact without their knowledge. If the
agent does not know of the designation, they are not liable for
inaction with respect to the principal's property. Further,
once someone has been made aware of the attorney-in-fact
designation, the agent can resign as the attorney-in-fact.
(Prob. Code Sec. 4152(6).) Thus, this bill will not increase
the attorney-in-fact's liability unless he or she is actively
managing the principal's property.
5. Amendment regarding criminal or civil charges
As introduced, this bill provided that an attorney-in-fact could
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be charged for various acts with regard to the principal's
property. The sponsor states the language of the bill was
modeled after Probate Code Sections 9601 (pertaining to duties
and liability of personal representatives) and 16440 (pertaining
to trustees). Since this language could be misread as giving
authority to apply either criminal or civil charges, the
author's office amended the bill to clarify that the
attorney-in-fact is chargeable or can be held liable for
specific actions with regard to the principal's property as
opposed to a petitioner being able to charge the
attorney-in-fact with criminal or civil charges.
Support : The Executive Committee of the Trusts and Estates
Section of the State Bar of California
Opposition : None Known
HISTORY
Source : Conference of California Bar Associations
Related Pending Legislation : None Known
Prior Legislation : SB 1907 (Campbell, Ch. 307, Stats. 1994)
(See Background.)
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