Fall 2012 Newsletter
Rule Number One
By Heather H. Szajda
In my first year of practice I learned Rule Number One the hard way. In law school we are taught to look up the statutes, follow the rules and regulations, let case law guide us, and prepare with thorough research. In practice, Rule Number One is do whatever the Clerk of Court requires. I learned this lesson when I dutifully followed the statute on how to file administrative paperwork for an adoption matter which required the filing of an original and two copies. Francis, a Deputy Clerk of Court for Nash County, North Carolina, told me to bring it back with three originals because the statute was not clear on which administrative body (the county, the state and an administrative division) had the right to receive the original and it would be easier if I just filed three originals to avoid a turf war. Francis had an excellent point and she was kind enough to point it out to me without making me feel like an idiot for failing to follow Rule Number One.
There are variations of Rule Number One, including but not limited to (i) what does the Register of Deeds require for this document to be recorded, (ii) what does the title company require to issue the policy, and (iii) how does the Judge want it done? Rule Number One is easy to forget, especially when things seem clear or there is a nice uniform law to follow, but we should remember the rule when preparing a Power of Attorney (“POA”). We should be asking ourselves, “How is this document going to be used and will it accomplish my client’s goals?”
It has been a few years since Virginia adopted the Uniform Power of Attorney Act and most estate and trust attorneys are familiar with the UPOAA provisions as adopted—including but not limited to the provision set forth in Virginia Code § 64.2- 1618(A), which states as follows:
Except as otherwise provided . . . (1) A person shall either accept an acknowledged power of attorney or request a certification, a translation, or an opinion of counsel under subsection C of § 64.2-1617 no later than seven business days after presentation of the power of attorney for acceptance; . . . and (3) A person may not require an additional or different form of power of attorney for authority granted in the power of attorney presented.
Liability imposed for failure to accept a POA has offered drafters comfort and perhaps made us a little complacent about the form and advice given to clients. Rule Number One requires consideration of how a POA granting an Agent general powers as set forth in Virginia Code § 64.2-1623 is treated by a third party. Two of the most common assets of an estate planning client are financial accounts and real estate, so it is important that a POA be drafted to ensure the Agent is given the authority needed to accomplish any estate planning goals.
Banking and Financial Assets.
Virginia Code § 64.2-1629 states that unless the POA provides otherwise, the language granting general authority with respect to banks and other institutions authorizes the Agent to:
(1) Continue, modify, and terminate an account or other banking arrangement made by or on behalf of the principal; (2) Establish, modify and terminate an account or other banking arrangement with a bank, trust company, savings and loan association, credit union, thrift company, brokerage firm, or other financial institution selected by the Agent; (3) Contract for services available from a financial institution, including renting a safe deposit box or space in a vault, (4) Withdraw by check, order, electronic funds transfer, or otherwise, money, or property of the principal deposited with or left in the custody of a financial institution; (5) Receive statements of account, vouchers, notices and similar documents from a financial institution and act with respect to them; (6) Enter a safe deposit box or vault and withdraw or add to the contents; (7) Borrow money and pledge as security personal property of the principal necessary to borrow money or pay, renew or extend the time of payment of a debt of the principal; (8) Make assign, draw, endorse, discount, guarantee, and negotiate promissory notes, checks, drafts, and other negotiable or nonnegotiable paper of the principal . . . ; (9) Receive for the principal and act upon a sight draft . . . ; (10) Apply for, receive, and use letters of credit, credit and debit cards . . . ; and (11) Consent to an extension of the time of payment with respect to commercial paper or a financial transaction . . . .
(hereinafter referred to as “general banking powers”). This is a tremendous amount of power that can be incorporated under Virginia Code § 64.2-1623. Rule Number One should cause us to ask how these general banking powers are interpreted or honored when the Agent presents a POA. Consider the following scenario:
Jane visits her attorney and has estate planning documents prepared which include a POA with general banking powers. Jane is widowed and has two children. Her children, Adam and Brenda, are the named Agents in the POA, but are to act in the order named (not jointly). Adam takes the POA to the Bank to: (a) title the checking account jointly with right of survivorship so it avoids probate (b) renew a CD that was previously titled jointly with both children, and (c) re-title Jane’s investment account into the name of her revocable trust. Jane has capacity and could have accompanied him but it is difficult for her to leave the house due to her medical condition.
Rule Number One led me to seek out the advice and opinion of general counsel for one of Virginia’s largest community banks (hereinafter “Community Bank”), a customer service representative at a large national bank branch, and vice counsel for a bank with a large national presence (hereinafter “Big Bank”) for the third party perspective. Community Bank’s legal counsel will review the POA, and such review will likely not happen while Adam is waiting at the branch for assistance. After review of the POA, Community Bank will likely let Adam renew the CD but will not allow him to re-title the checking account unless Jane consents in person. Community Bank will proceed with renaming her investment account into her revocable trust, but the account will be a new account. (Community Bank codes accounts in their computer system. An individual and trust have different codes, which negates the possibility of keeping the old account and switching the name of the owner.)
Big Bank will allow the renewal of the CD and possibly the re-titling of the checking account with right of survivorship without review of the POA by counsel. Big Bank will also allow Adam to close Jane’s personal investment account and open a new account of the same type in the name of her revocable trust without review of the document. According to customer service at Big Bank, matters that tend to raise alarms are older documents, forms that appear as though they were obtained from the Internet, and documents that either are not specific enough concerning gifting power or with gifting power that isn’t broad enough.
If Rule Number One is considered when drafting the form for a client, we should pause and consider whether the general banking powers are the right fit or whether the grant of a specific power in addition to the general powers would benefit the client. Does Jane have complicated banking assets or needs that require the grant of the general banking powers? Jane’s attorney may consider drafting specific provisions that allow Adam to perform the general banking powers with respect to some or all of her accounts that are specifically identified by institution and account number.
Virginia Code § 64.2-1625 provides a POA may authorize an Agent under the grant of general authority the power over real estate to:
(1) Demand, buy, lease, receive, accept as a gift or as security for an extension of credit, or otherwise acquire or reject an interest in real property or a right incident to real property; (2) Sell; exchange; convey with or without covenants representations, or warranties; quitclaim; release; surrender; retain title for security; encumber; partition; consent to partitioning; subject to an easement or covenant; subdivide; apply for zoning or other governmental permits; plat or consent to platting; develop; grant an option concerning; lease; sublease; contribute to an entity in exchange for an interest in that entity; or otherwise grant or dispose of an interest in real property or a right incident to real property; (3) Pledge or mortgage an interest in real property or right incident to real property as security to borrow money or pay, new or extend the time of payment of a debt of the principal or a debt guaranteed by the principal; (4) Release, assign, satisfy, or enforce by litigation or otherwise a mortgage, deed of trust . . . ; (5) Manage or conserve an interest in real property… owned by the principal . . . ; (6) Use, develop, alter, replace, remove, erect, or install structures or other improvements upon real property . . . .
(hereinafter referred to as “general real estate powers”). Failure to follow Rule Number One could mean that a POA including the general real estate powers isn’t effective if the transaction is one that requires recordation.
The first roadblock may be the Register of Deeds. A POA used for real estate purposes may need to be recorded: Virginia Code § 64.2- 1603 provides that “in order to be recordable [a POA] shall satisfy the requirements of § 55-106.” Recordation requirements as set forth in Virginia Code § 17.1-223 may require the surnames of the Principal and Agent be capitalized and underlined where they first appear in the POA and the drafter’s name be present on the first page of the document. Rule Number One requires that you ask your Register of Deeds or Clerk of Court if there are any particular requirements for recording powers of attorney or if there is a particular issue that prevents recordation that you can avoid. It has recently come to my attention that notary stamps and the color of ink used by a notary could cause an issue when recording a document.
The second roadblock could be the title company and the ability to acquire title insurance. Rule Number One requires that you determine what the title company will require if a POA is going to be used in the transaction and be specific about whether the Seller or the Owner is using a POA to sign the paperwork. Many title companies want to see the POA include a description of the real estate (the physical address and the legal description) and prefer a specific limited power of attorney that conforms to recordation requirements in the jurisdiction where the real property is located. Title companies know about the liability for failure to accept a POA. However, an exception to this rule is set forth in Virginia Code § 64.2-1618(B)(1), which states that “[a] person is not required to accept an acknowledged power of attorney for a transaction if . . . [t]he person is not otherwise required to engage in the transaction with the principal in the same circumstances . . . ,” and a title company is not required to sell an owner’s policy to any particular person.
Another roadblock, but probably not the final one, is what statutory or case law exists in the jurisdiction where the real estate is located. If your estate planning client owns real estate in North Carolina, you may be aware of the case law requirement that a POA must include the legal description of the real estate in order to be effective to transfer good title. A conflict-of-laws issue exists where one jurisdiction authorizes certain general real estate powers and another jurisdiction requires more specificity. It is worth taking the time to discuss with your client that real estate is a peculiar asset that may require additional consultation or a more tailored document depending on their needs.
Lastly, Rule Number One led me to seek the perspective of two Richmond attorneys that practice solely in the area of real estate. One attorney that practices in a large firm stated that large transactions are never closed using a POA. Another attorney confided that potential clients often request the preparation of a deed transferring property from the Principal to the Agent utilizing a POA that lacks gifting authority (permission for the Agent to make gifts of the Principal’s property to the Agent or other parties) to overcome self-dealing concerns.
Rule Number One should make an estate planner look further into the potential uses of a POA drafted as part of an estate plan. Further consideration to the authority given to the Agent and the potential reception of the document by a third party may be necessary depending on your client’s goals, assets, and relationship to the Agent.
Heather H. Szajda is a solo practitioner in Richmond, Virginia, who concentrates her practice on estate planning, estate and trust administration, and tax-exempt organizations. She obtained her undergraduate and law degrees from Wake Forest University and graduated with distinction from Georgetown Law with an LL.M in taxation. She is licensed to practice in Virginia, North Carolina, Maryland, and the District of Columbia.