Clients often have questions regarding the requirements of a Financial Power of Attorney under Maryland law. The purpose of this article is to explain the background of the Maryland statutory form power of attorney (that is, the financial power of attorney formed in accordance with the laws enacted by the General Assembly), review its provisions, and discuss what powers are given under the law. They may not be as broad as you may think, and this document may not be as useful as you think.
What is a Financial Power of Attorney?
In general, a financial power of attorney is a document in which a principal (the person executing the document) designates “agents” or “attorneys-in-fact” who are authorized to make decisions and act on the principal’s behalf with respect to the principal’s assets. The attorney-in-fact may be authorized to act whether or not the principal is able to act on their own, depending on the language of the document.
For example, you may designate your spouse as your attorney-in-fact, so that he or she may act on your behalf with regard to financial matters, if you are unavailable, for convenience purposes, or if you are incapacitated.
In many cases, and as best practice, a financial power of attorney is drafted to be effective immediately upon execution. Less commonly, a power of attorney may “spring” into effect upon a certain event, such as two doctors certifying the principal’s incompetency. The latter is used less frequently. One reason is because of the uncertainty of being able to have two doctors examine and certify the incapacity of the principal. Another reason is because there are times, as mentioned above, when the principal may want his or her agents to use the power of attorney when the principal is not incapacitated, such as when the principal is unavailable to attend a transaction. Generally, it is advisable to have the document effective when the principal signs it, and because of this, the most important factors in selecting an attorney-in-fact are (i) trustworthiness, (ii) financial responsibly, (iii) reliability, and (iv) sufficient age and health.
Are all Financial Powers of Attorney treated the same?
Prior to 2010, Maryland banks and other financial institutions were notorious in refusing to accept financial power of attorney documents based on form or content, or for their own convenience. Every bank was looking for a different form and for different language. At that time, even when a power of attorney complied with the Maryland laws in effect, a bank would refuse to accept the document based on their own compliance policies.
In 2010, the “Maryland Statutory Form Personal Financial Power Of Attorney” was enacted to combat this problem. Now, Maryland law provides that if the principal uses the standardized “statutory form” to designate his or her agents, then the financial institution must accept such form, or it will be responsible for the principal’s legal costs in any cause of action to secure acceptance.
It is likely that a bank will continue to refuse to honor a financial power of attorney if it does not comply with the statute enacted in 2010. If your existing power of attorney was drafted before October 2010, you should have the document reviewed by an attorney.
What powers am I giving my agent?
The statutory form solves the banks’ problems with form and acceptance, and may be easily found on the internet in the Maryland Code. So why should you hire an attorney to prepare your financial power of attorney?
The statutory form lists specific areas in which an attorney-in-fact may act on behalf of a principal. These areas include real estate, stocks and bonds, banking and other financial institutions, insurance and annuities, claims and litigation, retirement plans, and taxes. It does not, however, contain a blanket statement of authority. In fact, it does not specifically allow the agent to act in any way with regard to the principal’s personal items (vehicles, boats, artwork), their pets, social and religious activities, businesses, and estate planning. Actions concerning these more personal items are often what matter most to the principal.
For example, if a principal is incapacitated and his attorney-in-fact needs to sell the principal’s vehicle, then the statutory power of attorney does not specifically authorize such action.
As another example, if the principal is admitted to a nursing home, an attorney-in-fact would have no express authority to arrange for the housing, support, or maintenance of any animals that the principal owns.
Finally, the last example is a child (the principal) who is off at college and his attorney-in-fact (the parent) is unable to apply for, discuss, or negotiate student loans on behalf of the child, or, perhaps more importantly, discuss private information with the college or university pertaining to the child. This is a common situation when the financial power of attorney uses the current statutory language without elaboration.
Fortunately, a financial power of attorney complies with the statute, and therefore receives the protection that the statute affords, so long as its provisions are in substantially the same form as the “Maryland Statutory Form Personal Financial Power Of Attorney.” What some do not realize is that this allows an attorney to prepare a financial power of attorney document that adds provisions the legislature may have overlooked, or which apply to a client’s specific situation, and it will still comply with the requirements of the Maryland statute.
What is my next step?
No one wants to execute a document that will not work in all cases. The Maryland statute has brought uniformity and acceptance to the State’s financial power of attorney form, but it does not cover all situations. In order to guarantee that your financial power of attorney complies with the Maryland law and also is tailored to your specific needs, please speak with an attorney.
Kristy Bayus Williams is an Associate in PK Law’s Wealth Preservation Department. She focuses her practice on drafting estate planning documents, administrating probate estates, and counseling in the areas of estate taxes, asset protection, and elder law. Kristy can be reached at 410-339-6774 or firstname.lastname@example.org.