KENTUCKY POWER OF ATTORNEY CHANGES
Written by Jim Worthington on March 30, 2020
Three big changes to Kentucky power of attorney law will take effect sometime this summer because Kentucky has adopted the parts of the Uniform Power of Attorney Act that it did not adopt when the law last changed in 2018. (Click here for an article about the 2018 changes.) Here’s a first look at the 2020 change created by Governor Beshear signing HB 154 on March 27, 2020. There will be time for more in-depth analysis later because we won’t know the effective date until the General Assembly adjourns the 2020 Regular Session. Non-emergency Kentucky laws take effect the first moment of the first day that is 90 days after adjournment.
Statutory Powers and a Statutory Form
The new law adopts the Uniform Power of Attorney Act’s dualistic approach: some powers must be expressly authorized, while others are automatically incorporated by reference without being expressly mentioned in the power of attorney instrument. Powers like changing beneficiaries or dealing with trusts are in the former group and must be expressly mentioned to be included. In contrast, a general grant of authority “with respect to banks and other financial institutions” automatically includes the authority to act in 11 ways detailed by sub-sections of the statute. Similarly, “[a]uthority with respect to operation of an entity or a business” incorporates 13 sections and 9 sub-sections by reference.
The statute’s defining the powers in such detail ties in with the new law’s inclusion of a statutory form. The statutory form uses one-line references to the powers that are defined in the statute. Principals can check off the powers they want to give their agent.
Statutory forms are a two-edged sword. The pros are that they are more likely to be accepted by banks and other institutions and they can be less expensive than customized documents. The major disadvantage—and it’s an important one—is that most clients will not understand the powers they are granting. The complexity around gifts is a good example of how a layperson’s use of the statutory form may create confusion or inaccurately express their intent. It’s good to see that the statutory form includes cautions and advice to consult a lawyer, but experience suggests that clients are slow to seek advice after signing a form.
Lawyers will have to adapt their marketing and their service delivery to this new environment. We will need to educate the public about the shortcomings of the statutory form, particularly with respect to Medicaid or other benefit planning, as discussed in the next section. And lawyers will need to focus less on customized drafting and more on counseling clients about the particular powers incorporated by reference in the statutory form power of attorney.
The new law addresses the problems created when the 2018 law accidentally repealed the statutory requirement to expressly authorize gifts. That repeal resulted in questions about whether a power of attorney that was silent about gifts nevertheless granted that authority. The 2020 law goes into detail:
- The power of attorney must expressly authorize gifts for the authority to exist.
- If the agent under the power of attorney is someone other than the principal’s spouse, ancestor, or descendant, agents may not make gifts to themselves or persons to whom they owe a legal obligation of support unless the power of attorney expressly grants that power.
- A grant of power to make gifts authorizes annual exclusion gifts and gift-splitting with a spouse. The new law is silent, however, about larger gifts—such as those the agent might make to qualify the principal for Medicaid or other benefits— so those should be expressly authorized if desired. This point is important. If a principal uses the statutory form, it may not allow them or their family to do Medicaid planning. If the principal is no longer able to act or to sign a new power of attorney specifically authorizing larger gifts, the planning opportunities will be severely limited.
- If the agent knows the principal’s objectives, the agent must act consistent with them. If the agent doesn’t know the principal’s objectives, the agent must take into consideration the factors listed in the statute before making gifts. My preliminary take is that it would be better to give the agent authority to always take those factors into consideration. This, too, will require the lawyer to add to the statutory form.
No More Witnesses
Powers of attorney will no longer require two disinterested witnesses, taking us back to where we were before the General Assembly’s big changes in 2018. This will make it much easier for principals to sign powers of attorney, particularly in urgent situations.
So, for the second time in three years, Kentucky lawyers must respond to big changes in the law about powers of attorney. The 2020 change is even bigger than the one in 2018; many clients may want to sign new powers of attorney to ensure that their wishes are clear. The statutory form provides a good starting point for discussion, but lawyers should make efforts to educate their clients about the meaning of each power granted in that form, and to use their professional expertise to add additional language customized to each client’s needs.