Durable powers of attorney: a less restrictive alternative?

The viability of Florida's durable powers of attorney was put into question by Peter B. Tiernan in his article entitled "Florida Durable Powers of Attorney, Exploring the Limitations of an Agent's Authority."(1) According to Mr. Tiernan, as a result of the 1995 revisions to F.S. 709.08, which governs durable powers of attorney ("DPOAs'), an attorney-in-fact is substantially limited in the powers he or she may perform on behalf of a principal. Mr. Tiernan contends that standard provisions routinely contained in a DPOA are not enforceable without court intervention. However, the legislative intent behind the creation and later amendments to F.S. [section] 709.08 and the weight Florida's courts have given to express provisions of a duly executed DPOA need to be considered. (2) This article will argue that a properly drafted and duly executed DPOA can, without the need of court intervention, assist potentially disabled or incapacitated persons in handling their legal, business, and property affairs.

Legislative History

F.S. [section] 709.08 has evolved substantially since 1974, when Florida's legislature first created the durable family power of attorney ("DFPOA") (3) to provide family members a means to "help a potentially disabled or incompetent person in handling that person's legal, business and property affairs." (4) Originally, only the principal's spouse, parent, or child, whether natural or adopted, qualified to act as an attorney-in-fact under a DFPOA. (5) Gradually, the class of persons qualifying to act as an attorney-in-fact under a DFPOA was expanded to those "related to the principal by lineal consanguinity, whether natural or adopted." (6) The DFPOA was replaced in 1990 with a general DPOA. (7) However, the 1990 revisions failed to specify who qualified to act as an attorney-in-fact under a DPOA. Presumably, any person who was at least 18 years of age and of sound mind qualified as an attorney-in-fact under the Florida's original DPOA.

Finally, in 1995, F.S. [section] 709.08 was substantially revised to provide that any person at least 18 years of age and of sound mind, a financial institution (as defined by F.S. Ch. 655) with trust powers, conducting and authorized to transact business in the State of Florida, or a not-for-profit corporation, organized in the State of Florida for charitable or religious purposes, which qualified as a court-appointed guardian prior to January 1, 1996, and which is a tax-exempt organization under [section] 501(c)(3) of the Internal Revenue Code of 1986, as amended, is qualified to act as an attorney-in-fact under a DPOA. (8) The 1995 revisions also gave third parties, acting in good faith, a basis to rely upon a DPOA and provided practitioners with the first statutory guidance as to the powers which may be conferred upon an attorney-in-fact and the limitations of such powers. There have been several revisions to F.S. [section] 709.08 since 1995, including the enactment of legislation allowing for a springing DPOA, which took effect on January 1, 2002. (9) However, the bulk of the 1995 DPOA statutory provisions have remained unchanged.

Limitations of DPOA

According to the previous article, the following provisions of [section] 709.08, which took effect on July 1, 1995, substantially limit the powers that may be conferred upon an attorney-in-fact:

1) Section 709.08(7)(b)5, which provides that an attorney-in-fact may not "[c]reate, amend, modify or revoke any document or other disposition effective at the principal's death or transfer assets to an existing trust created by the principal unless expressly authorized by the power of attorney."

2) Section 709.08(7)(a), which provides that "[e]xcept as otherwise limited by this section, by other applicable law, or by the durable power of attorney, the attorney in fact has full authority to perform, without court approval, every act authorized and specifically enumerated in the durable power of attorney."

Applying the doctrine of last antecedent (10) to [section] 709.08(7)(b)5, Mr. Tiernan contends that as a result of the lack of a comma prior to the phrase "unless expressly authorized by the power of attorney" an agent acting under a DPOA may not:

1) Create, amend, modify, or revoke any document or other disposition effective at the principal's death, notwithstanding anything to the contrary stated in the DPOA (11); or

2) Transfer assets to an existing trust created by the principal unless expressly authorized by the power of attorney. (12)

Analyzing [subsection] 709.08(7)(b)5 and 709.08(7)(a) together, the article argues that an attorney-in-fact may not exercise, without prior court approval, the following powers, all of which are commonly intended to be exercised by an attorney-in-fact:

1) Exercise authority over jointly owned property of the principal, including real estate, bank accounts, payable on death accounts or in-trust for accounts, as exercising authority over property with survivorship features constitutes a modification of a disposition effective at the principal's death. (13)

2) Exercise authority to remove funds from the principal's retirement plans or individual retirement accounts, as such withdrawals constitute a modification of a disposition effective at the principal's death. (14)

3) Borrow money against a life insurance policy owned by the principal, as the exercise of such authority constitutes a modification of a disposition effective at the principal's death. (15)

4) Withdraw money from a trust pursuant to a plan to qualify the principal for Medicaid, as such act constitutes a modification or revocation of a disposition effective at the principal's death. (16)

5) Make gifts of the principal's property to the attorney-in-fact, as such action is prohibited by the laws of agency, which provide that an agent may not act adversely to the interests of the principal. (17)

Proposed Construction of [section] 709.08 Inconsistent with DPOA Purpose

While F.S. [section] 709.08 has expanded the class of persons qualified to act as attorneys-in-fact beyond members of the principal's immediate family, the purpose behind the DPOA remains intact: The DPOA is intended to assist potentially disabled or incapacitated people in handling their business and personal affairs without the need for court intervention. In re Estate of Schiver, 441 So. 2d 1105 (Fla. 5th DCA 1983), was the first case to address the issue of whether an attorney-in-fact, appointed pursuant to a properly drafted DFPOA, could elect the principal's right to an elective share. In reaching its decision that an attorney-in-fact could exercise the principal's right to an elective share, Florida's Fifth District Court of Appeal recognized a distinction between an agent acting under a DFPOA and a court-appointed guardian. In distinguishing the two, the court stated the following:

1) The DFPOA "has the beneficial effect of avoiding the time, expense and embarrassment involved in having to establish guardianships for incompetent persons." (18)

2) "The holder of a family durable power of attorney is appointed by the donor of the power, and essentially performs the same functions as would a court appointed guardian." (19)

Furthermore, the court stated the DFPOA applied to all property of the principal, including homestead property, provided the principal's spouse joined in the alienation of such homestead property. (20)

As recently as July 2002, in Smith v. Lynch, 821 So. 2d 1197 (Fla. 4th DCA 2002), the court recognized that a DPOA is intended to be a less restrictive alternative to a guardianship. In Smith, the court refused to impose a guardianship on a person who was found to be incapacitated. Holding that the previously executed DPOA was an appropriate alternative to a guardianship, the court stated "that the appointment of a guardian would serve no useful purpose and would unnecessarily interfere with the family." (21) In support of its decision, the court cited [section] 744.344, which provides that an "order appointing a guardian must be consistent with the incapacitated person's welfare and safety, must be the least restrictive appropriate alternative, and must reserve to the incapacitated person the right to make decisions in matters commensurate with the person's ability to do so." (22)

It is clear that the Florida Legislature intended for an agent acting under a DPOA to have powers different from a court-appointed guardian. F.S. [section] 709.08(7)(a) provides that "[e]xcept as otherwise limited by this section, by other applicable law, or by the durable power of attorney, the attorney in fact has full authority to perform, without court approval, every act authorized and specifically enumerated in the durable power of attorney." (Emphasis added.) This clause provides further evidence that the Florida Legislature intended DPOAs to be a less restrictive alternative to guardianships.

Powers of an Attorney-in-Fact

Other provisions of [section] 709.08 and the weight Florida courts place on the express provisions contained in a duly executed DPOA need to be considered. There is no indication, either on the face of [section] 709.08 or in its legislative history, that the Florida Legislature intended to overrule prior case law by adding subparagraph (7) to [section] 709.08 in 1995. In the absence of such indication, it is this author's opinion that relevant case law must be considered in determining the powers that may be exercised by an attorney-in-fact pursuant to a duly executed DPOA.

* Jointly Owned Property With Rights of Survivorship Section 709.08(7)(a)(2) specifically authorizes an attorney-in-fact to convey or mortgage homestead property upon the proper joinder of the principal's spouse. In addition, [section] 709.08(6) provides, in part, that a DPOA applies to "homestead real property" and "all property held in any type of joint tenancy, including a tenancy in common, joint tenancy with right of survivorship, or a tenancy by the entirety." Furthermore, in Bloom v. Weiser, 348 So. 2d 651 (Fla. 3d DCA 1993), the court held that a power of attorney which specifically authorized the conveyance of real property granted the attorney-in-fact the authority to convey the principal's jointly owned property without court approval. (23) Therefore, if specifically enumerated in a duly executed DPOA, an attorney-in-fact may exercise authority over jointly owned property of the principal, payable on death accounts and in-trust for accounts.

* Individual Retirement Accounts In the case of Goeke v. Goeke, 613 So. 2d 1345, 1348 (Fla. 2d DCA 1993), the court held that a guardian, with court approval, has the power to establish and modify individual retirement accounts, including the authority to designate beneficiaries of an individual retirement account. The court also indicated that had the power of attorney at issue survived the incapacity of the principal and specifically contained such authority, the attorney-in-fact could have exercised such authority on behalf of the principal. Therefore, it is this author's opinion that if specifically enumerated in a duly executed DPOA, a court would rule that an attorney-in-fact has the authority to modify or change a beneficiary designation on or remove funds from a retirement plan or an individual retirement account without prior court authorization.

* Life Insurance

Currently, we do not have any guidance from the Florida courts regarding an attorney-in-fact's authority to borrow against a life insurance policy owned by the principal. A life insurance policy is a contractual arrangement and in this regard is similar to a retirement plan or an individual retirement account. Therefore, if specifically enumerated in a DPOA, it is this author's opinion that a court would rule an attorney-in-fact has the authority to borrow against life insurance policies owned by the principal.

* Withdrawal of Trust Assets for Medicaid Qualification

A durable power of attorney is commonly used to withdraw assets from the principal's revocable trust to qualify a principal for Medicaid. Because the principal retains the right to revoke his or her trust, the assets of a principal's revocable trust are treated as owned directly by the principal and may be freely disposed of during the principal's lifetime. Furthermore, [section] 709.08(7)(b)5 does not specifically prohibit the withdrawal of assets from a trust. Presumably, because [section] 709.08(7)(b)5 specifically addresses transfers into a trust, the failure of the Florida Legislature to address transfers out of a trust was intentional. Therefore, [section] 709.08(7)(b)5 should not apply to transfers out of a trust. In addition, [section] 709.08(9)(d) provides, in part, that an attorney-in-fact may be held liable for failing to participate in the administration of the principal's property legal title to which is in a trust subject to the principal's power of revocation. As a result, if the authority to withdraw trust assets is specifically enumerated in a duly executed DPOA, an attorney-in-fact would be obligated to make transfers out of the principal's revocable trust if necessary to qualify the principal for Medicaid.

* Gifting Authority

Finally, it is well established that a duly executed DPOA may confer gifting authority upon an attorney-in-fact. (24) In an unpublished opinion, Florida's Fifth District Court of Appeal in James v. James, No. 5D021565 (Fla. 5th DCA March 7, 2003), stated that "an agent cannot make gifts to himself or others unless it is expressly authorized in" the DPOA. It is also well established that an attorney-in-fact must act for the benefit of the principal. (25) Furthermore, [section] 709.08(8) imposes a fiduciary duty upon an attorney-in-fact to observe the standard of care applicable to trustees. Therefore, an attorney-in-fact may make gifts of the principal's property and such gifts may be made to the attorney-in-fact if the underlying duly executed DPOA specifically grants such gifting authority.

Conclusion: Proposal for Statutory Change

While practitioners have the legislative intent of [section] 709.08 and relevant case law to rely on in drafting DPOAs, the Power of Attorney and Advance Directive Law Committee of the Real Property, Probate and Trust Law Section of The Florida Bar recognizes the need to revise [section] 709.08 and is in the process of finalizing its proposed revisions. The committee's intent in revising the section is to provide practitioners with specific statutory guidance in drafting DPOAs which may be relied upon by third parties. The committee's proposed revisions provide for more than the simple insertion of a comma as "punctuation is considered to be the most fallible and least reliable indication of the legislature's intent." (26) Consistent with the substance of this article, the committee's current draft of the proposed revisions to F.S. [section] 709.08 deletes the existing provisions of [section] 709.08(7)(b)5 and adds the following language at subparagraph (c) to [section] 709.08(7): (27)

A power of attorney may not be construed to grant authority to an attorney in fact to perform any of the following acts unless expressly authorized in the power of attorney:

1. Exercise the principal's right to create, modify or revoke a trust, or withdraw property or receive income from any trust.

2. Fund with the principal's property a trust not created by the principal or a person authorized to create a trust on behalf of the principal.

3. Make or revoke a gift of the principal's property in trust or otherwise.

4. Exercise the right to make a disclaimer on behalf of the principal. This does not limit the attorney in fact's authority to disclaim a detrimental transfer to the principal with the approval of the court.

5. Exercise the principal's right to create or change survivorship interests in the principal's property, accounts or in property in which the principal may have an interest, or withdraw assets or funds from any type of joint, pay on death, survivorship or retirement account.

6. Designate or change the designation of beneficiaries to receive any property, account, benefit, contract of insurance or contract right on the principal's death.

7. Make loans to the attorney-in-fact.

8. Continue, pay the premium on, modify, rescind, release, terminate, procure, borrow against or withdraw cash value from any contract of life, accident, health or disability insurance or contract for the provision of health care services.

9. Make gifts to charity or members of the principal's family, including the attorney in fact, in connection with estate and income tax planning and public benefits planning. (28)

In addition, the committee is currently drafting additional language to [section] 709.08 that would allow an attorney-in-fact to be granted greater authority in order to qualify the principal for public benefits. Once final, the proposed revisions, which are expected to be substantially similar to their current form, will be presented to the Florida Legislature for consideration as a proposed bill.

The failure of Florida's legislature to insert a comma prior to a qualifying phrase in [section] 709.08(7)(b)(5) should not, without more, limit the powers that may be conferred upon an attorney-in-fact. Until the committee's proposed revisions to [section] 709.08 are enacted into law, practitioners should continue to rely upon legislative intent and existing case law when drafting DPOAs. Therefore, it is this author's opinion that practitioners may continue to grant the following powers to an agent acting under a DPOA in the expectation that these powers can be exercised without prior court approval:

1) Exercise authority over the principal's jointly owned property, including real estate, bank accounts, payable on death accounts or in-trust for accounts.

2) Exercise authority to remove funds from or change the beneficiary designation on the principal's retirement plan or individual retirement account.

3) Borrow money against a life insurance policy owned by the principal.

4) Withdraw money from the principal's revocable trust pursuant to a plan to qualify the principal for Medicaid.

5) Make gifts of the principal's property to third parties, including the attorney-in-fact.

Both the Florida Statutes and Florida case law clearly recognize that an agent acting under a duly executed DPOA has the authority, without court intervention, to exercise the powers specifically enumerated therein. The Florida Statutes allowing DPOAs are intended to create a less restrictive alternative to guardianships. While statutory clarification is desirable, the current status of the law in Florida satisfies this requirement.

(1) Peter B. Tiernan, Florida Durable Powers of Attorney, Exploring the Limitations of an Agent's Authority, FLA. B.J. 34 (Aug. 2002).

(2) FLA. STAT. [section] 709.08(1) provides that a durable power of attorney "must be in writing, must be executed with the same formalities required for the conveyance of real property by Florida law, and must contain the words: 'This durable power of attorney is not affected by the subsequent incapacity of the principal except as provided in [section] 709.08, Florida Statutes'; or similar words that show the principal's intent that the authority conferred is exercisable notwithstanding the principal's subsequent incapacity, except as otherwise provided by this section." Pursuant to FLA. STAT. ch. 689, entitled Real and Personal Property, a DPOA must be executed by the principal, in the presence of two subscribing witnesses, and acknowledged by a notary.

(3) FLA. STAT. [section] 709.08 (1974).

(4) In re Estate of Schiver, 441 So. 2d 1105, 1106 (Fla. 5th D.C.A. 1983).

(5) FLA. STAT. [section] 709.08(1) (1975).

(6) FLA. STAT. [section] 709.08 (1987).

(7) FLA. STAT. [section] 709.08 (1990).

(8) FLA. STAT. [section] 709.08(2) (2003).

(9) FLA. STAT. [section] 709.08(1) (2002).

(10) Under the doctrine of last antecedent, "relative and qualifying words or phrases are to be applied to the words, phrases and clauses immediately preceding, and are not to be construed as extending to or including others more remote." Kirksey v. State, 433 So.2d 1236, 1241 (Fla. 1st D.C.A. 1983), citing McKenzie Tank Lines v. McCauley, 418 So.2d 1177, 1179-80 (Fla. 1st D.C.A. 1982).

(11) Tiernan, supra note 1, at 36.

(12) Id.

(13) Id. at 36-37.

(14) Id. at 37.

(15) Id.

(16) Id. at 37-38.

(17) Id. at 38-40. To allow for gifting to the attorney-in-fact, the previous article suggests it may be necessary to appoint a special attorney-in-fact charged with the sole duty and responsibility of making gifts to the primary attorney-in-fact. See id. at 40.

(18) Schiver, 441 So. 2d at 1106.

(19) Id. at 1107.

(20) Id. at 1106.

(21) Lynch, 821 So. 2d at 1199.

(22) Id. at 1198 (emphasis in original).

(23) Bloom v. Weiser, 348 So. 2d 651 (Fla. 3d D.C.A. 1977).

(24) See generally Johnson v. Fraccacreta, 348 So. 2d 570 (Fla. 4th D.C.A. 1977); Hedges v. Surratt, 366 So. 2d 768 (Fla. 2d D.C.A. 1978); Kotsch v. Kotsch, 608 So. 2d 879 (Fla. 2d D.C.A. 1992); Estate of Bell v. Johnson, 573 So. 2d 57 (Fla. 1st D.C.A. 1990); and Vaughn v. Batchelder, 633 So. 2d 526 (Fla. 2d D.C.A. 1994).

(25) See generally Johnson, 348 So. 2d at 570, and Hedges, 366 So. 2d at 768.

(26) Tiernan, supra note 1, at 36, citing Wagner v. Botts, 88 So. 2d 611 (Fla. 1956).

(27) In the current draft of the committee's proposed revisions, existing subparagraph (c) of FLA. STAT. [section] 709.08(7), is proposed to be renumbered as subparagraph (d) to [section] 709.08(7).

(28) Power of Attorney and Advance Directive Law Committee of the Real Property, Probate and Trust Law Section of The Florida Bin, proposed revisions to FLA. STAT. [section] 709.08.

Katherine L. Smith is an associate with Icard, Merrill, Cullis, Timm, Furen & Ginsburg, PA., in Sarasota. She is a member of the Power of Attorney and Advance Directive Law Committee of the Real Property, Probate and Trust Law Section of The Florida Bar and the Medicaid Committee of the Elder Law Section of The Florida Bar. Ms. Smith received a J.D. from the University of Wisconsin and an LL.M. in taxation from the University of Missouri--Kansas City. The author thanks Michael L. Foreman and Shelley W McDaniel for their assistance with this article.

This column is submitted on behalf of the Real Property, Probate and Trust Law Section, Louis B. Guttman III, chair, and Richard R. Gans and William P. Sklar, editors.