The 2017 Texas Durable Power of Attorney Act allows the principal in his or her power of attorney (POA) to grant an agent estate planning powers, commonly referred to as “hot powers.” Hot powers allow the agent to (1): create, amend, revoke or terminate a trust made by the principal during lifetime; (2) make gifts; (3) create or change a beneficiary designation – including a pay-on-death provision, as in a bank or investment account; (4) create or change right of survivorship designations; or (5) delegate authority granted in the POA.
These hot powers are so broad that, if given, they create a substantial risk of abuse. The Act does provide this safeguard: the agent must preserve the principal’s estate plan to the extent that the agent has actual knowledge of that plan.
The agent under a POA has a fiduciary responsibility to the principal. This means the agent has agreed that, as a matter of law, his or her conduct in regard to the principal and the principal’s assets will be judged by a high standard. That standard requires the agent to act in good faith, deal fairly, perform honestly and provide strict accountability.
Since the Act allows a principal to grant powers that may permit the agent to benefit himself, which a fiduciary is generally not allowed to do, it is imperative that the POA language make crystal clear what exact powers are granted.
The Act forbids an agent, who is not an ancestor, spouse or descendant of the principal, to exercise powers in favor of himself, herself or anyone he or she has a legal obligation to support. Interestingly, the Act does not expressly give permission to an agent who is an ancestor, spouse or descendant of the principal to benefit himself or herself or anyone whom he or she has a legal obligation to support. If the principal wants to give that power, it must be stated in the POA.
Many POAs authorize the agent to make gifts to anyone except the agent himself or herself. Even if the POA expressly gives the agent the power to gift himself or herself, the question arises: what if such a gift substantially changes the principal’s estate plan? My opinion is that such an action would violate both the Act and the agent’s fiduciary duty to the principal.
Both principal and agent should seek legal counsel in establishing a POA. The POA should be drafted to accurately and clearly state the principal’s wishes. The agent should be given counsel to understand the extent of the authority given.
Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth. She lives in beautiful Somervell County, near Chalk Mountain.