In July 2017, the North Carolina General Assembly enacted a new law governing most powers of attorney in this State. The law is a version of the 2006 Uniform Power of Attorney Act issued by the National Conference of Commissioners on Uniform State Laws, which is now in effect in at least 25 states. The new powers of attorney law (referenced as the “Act”) goes into effect on January 1, 2018 and will affect both existing and new powers of attorney. The Act brings some much-needed clarity to the law concerning powers of attorney in North Carolina. It also brings this State into line with the laws of a majority of other states in the country concerning powers of attorney.
What are Powers of Attorney?
A “power of attorney” is simply a document signed by a person (the “principal”) that authorizes and empowers another person (the “agent”) to act on behalf of the principal. (The Act uses the term “agent” instead of the traditional “attorney-in-fact,” a welcome simplification of terms.) The powers granted by a power of attorney to an agent can be as broad as permitting any act that the principal could do by him/herself, or can be limited to specific enumerated actions. Powers of attorney are frequently used in estate planning and elder care matters, as well as in real estate and other business transactions.
Notably, the Act does not affect health care powers of attorney, proxies or other delegations of voting or management rights, or powers granted on a form prescribed by a governmental agency, which remain subject to the current law governing those types of powers of attorney.
The Act replaces or amends a number of existing North Carolina laws pertaining to powers of attorney. What are some of the key changes made by the Act?
There are two major changes from the current law regarding “durable” powers of attorney. Durable powers are those that survive the incapacity or mental incompetency of the principal. Currently, in North Carolina, a power of attorney terminates upon the incapacity or incompetency of the principal unless (1) the power expressly states that it is not affected by the principal’s incapacity or mental incompetence and (2) the power has been registered in the office of the Register of Deeds. The Act completely reverses these rules and makes a power of attorney durable unless it specifically states that it is terminated by the incapacity of the principal. Also, the power is no longer required to be registered in order to be durable. Essentially, under the Act a power of attorney is going to be durable unless it states that it is not.
General and Specific Powers
The Act does a better job of defining the powers that the agent may exercise and distinguishing between general and specific grants of such powers. The Act allows a principal to grant to the agent the power to do anything that the principal could do, in which case the agent is deemed to have all of the powers listed in the Act, with a couple of exceptions. The principal can also grant such general authority by incorporating by reference in the power of attorney the fourteen categories of activities that are described in the Act. Either way, the scope of the agent’s authority is then defined in detail by the specific provisions of the Act dealing with such matters as “real property”, “tangible personal property”, “stocks and bonds”, “banks and other financial institutions”, “insurance and annuities” and more.
However, certain things require specific grants of authority in a power of attorney and are not deemed to be included in a general power. These are things that could dissipate the principal’s estate or alter the principal’s estate plan, such as changing beneficiaries, exercising powers under a trust, or making gifts. Additionally, matters that would be self-dealing on the part of the agent (such as making gifts to him/herself or being designated a beneficiary) require express authorization in the power.
Safe Harbors Protect Persons Relying on Powers of Attorney
The Act does not allow a person or entity such as a bank to require use of a particular form of power of attorney, as long as the power presented reasonably appears to authorize the business the agent wishes to conduct. However, to protect persons acting in reliance on a power of attorney, the Act creates some safe harbors, including the following:
° A person may rely upon a presumption that the notarized signature of the principal is genuine, absent actual knowledge to the contrary. Also, if a person in good faith accepts a power of attorney without actual knowledge that it is void, invalid or terminated, or that the agent is exceeding authority, then the person may rely upon the power and will not be responsible for any breach of fiduciary duty, self-dealing or misapplication of funds by the agent.
° A person receiving a power of attorney is permitted within 7 business days to request a written certification from the agent as to the validity of the power, including that it has not been terminated or revoked.
° The recipient of the power may also request an opinion of counsel if a written reason for such a request is provided. This opinion may be useful in determining whether a non-North Carolina power has been validly executed and authorizes the action in question. Even upon receipt of a certification and/or a legal opinion, however, one is not required to accept a power of attorney for certain reasons that are set out in the Act, including having knowledge that someone has made a report of possible physical or financial abuse of the principal to adult protective services or law enforcement.
The Act has a number of other new provisions, including the following:
° Short Form Power: A new “short form” power of attorney is provided in the Act, replacing the version in the prior statutes. However, there is a trap for the unwary regarding short form powers that used the old form, which is that the new Act will not govern the interpretation of the powers referenced in a short form under the prior statute. Rather, the previous statute will continue to govern such powers.
° Real Estate Power: The Act also contains a new limited power of attorney form solely for use in real estate transactions.
° Incapacity: The term “incapacity” is defined differently in the Act, with more precision than before and with certain default mechanisms for determining when incapacity has occurred. This is important since powers of attorney do not deprive the principal of the ability to act on his/her own until incapacity has occurred.
About the Author – Stephen D. Poe
Steve Poe practices commercial law, with a particular emphasis on banking and financial services, at the law firm of Bell, Davis & Pitt, P.A. Steve has practiced at the firm for almost 30 years and recently served for 6 years as the firm’s President.
During his tenure at Bell, Davis & Pitt, he has represented many national and state-chartered banks, finance companies, mortgage companies, credit unions, and other companies providing financial services. Prior to joining Bell, Davis & Pitt, he was a member of the general counsel’s office at NCNB Corporation, a predecessor of Bank of America.
Steve is very active in the community, including serving on the board of directors of the Winston-Salem Chamber of Commerce.