Kentucky’s Power of Attorney (“POA”) laws just received an update. Effective July 14, 2018, Kentucky adopted portions of the Uniform Power of Attorney Act (2006) drafted by the Uniform Law Commission (“ULC”). Even though Kentucky did not adopt Articles 2 or 3 of the uniform act (which address specific powers granted to the agent and a sample form), the new statutes will provide much needed clarity in replacing our previously sparse statutes.
Generally speaking, a POA is an instrument by which a person (called, the principal) designates another (called, the agent or attorney-in-fact) to deal with the principal’s property and act on the principal’s behalf, either out of necessity or mere convenience. Often, a POA will be designated as “durable,” meaning it remains in effect even after the principal loses the capacity to manage his or her property.
POAs are governed by state law, which can mean that a single instrument can be interpreted in very different ways from one state to the next. The ULC has promoted the adoption of a uniform law across the country in an effort to reduce these potential inconsistencies for principals who move from one state to another or own property in multiple states. According to the ULC, Kentucky will join 26 other states that have already adopted portions of the uniform law, meaning a POA drafted to comply with the new Kentucky law should be interpreted similarly in a majority of states.
Kentucky’s new statutes are located in Chapter 457 of the Kentucky Revised Statutes (the “KY UPOAA”) and they replace KRS 386.093. KRS 386.093 was a bare-bones statute that dealt with only three issues related to POAs: (i) durability, (ii) the default method of determining a principal’s incapacity, and (iii) when an agent is authorized to make gifts of the principal’s property.
On the whole, the new laws adopted in Kentucky will provide substantially more guidance on the drafting, interpretation, and use of POAs than did KRS 386.093. Below are some of the items addressed in the new statutes:
- Execution. A POA must be signed in the presence of two disinterested witnesses. This is a change from the prior law and uniform act, which do not require any witnesses. In addition, we recommend that the POA is signed before a notary public so it is an acknowledged POA capable of being filed to transfer real estate and for acceptance by a third party discussed below.
- Durability and Coordination with Guardianship or Conservatorship Proceedings. Under the new act, a POA is durable unless the instrument specifically states otherwise. In addition, a principal may nominate a person for consideration by the court to serve as the principal’s guardian or conservator, if necessary. However, in a break from the uniform act and prior law, the POA terminates upon the appointment of a guardian or conservator unless the court specifically provides that it shall remain in effect.
- Co-Agents. If a principal designates two or more persons to act co-agents, each co-agent may act independently unless the POA provides otherwise. This is different from the typical rule that require co-agents or co-fiduciaries to act by a majority.
- Agent compensation. By default, an agent is entitled to reasonable compensation. To the extent the principal does not wish the agent to receive compensation, the principal would need to say so explicitly in the POA.
- Fiduciary duties. At a minimum, an agent must act in good faith, within the scope of the authority granted to him or her, and in accordance with the principal’s reasonable expectations or best interests. However, a principal may waive certain other duties such as the duty of loyalty and to avoid conflicts of interest, which may not be appropriate when a close family member or personal friend is serving as agent.
- Acceptance by a Third Party. In response to difficulties some agents face persuading banks, insurance companies, or other institutions to accept an otherwise valid and enforceable POA that may not match up with the institution’s internal policies and procedures, a third party must accept a POA that was acknowledged by a notary or may ask for a certification, translation into English, or opinion of counsel regarding authority granted to the agent in the instrument. However, the third party may not require an additional or different form of POA for authority granted in the POA presented.
- Gifting. Curiously, unlike its predecessor, the KY UPOAA is entirely silent on whether or under what circumstances an agent has authority to make gifts of the principal’s property, except that the agent shall attempt to preserve the principal’s estate plan including the minimization of taxes. Accordingly, unless a specific grant of authority is included in the POA, it may be unclear whether an agent is authorized to make gifts.
Any POA validly executed in Kentucky prior to July 14, 2018, will continue to be valid under the new law. However, the new act will apply a judicial proceeding concerning a POA commenced on or after July 14, 2018.