New N.C. Power of Attorney Act Makes Important Changes

A financial power of attorney may be your most important estate planning document. If you do not have a Will or a medical power of attorney, North Carolina law determines who gets your stuff and who makes medical decisions. But if you don't have a financial power of attorney, there is no one named in default to make decisions if you are incapacitated. The only remedy in such a case is to request that a guardian be appointed. Guardianship is generally something to be avoided. The N.C. Uniform Financial Power of Attorney Act went into effect on January 1, 2018. It is the first major overhaul of this law since the early 1980’s. 

The new law does not impact health care powers of attorney or health care documents for a minor child, and any existing general financial power of attorney on record is still valid.

The new act applies to powers of attorney created before, on, or after January 1, 2018 unless it contains a clear indication of contrary intent or the application of a particular provision would “substantially impair the rights of party.” However, the powers conferred by the older power of attorney statute will apply to statutory short form powers of attorney that were executed prior to 2018. These powers are not as broad as the those in the new statute.

There is a new short form power of attorney, as well as a short form limited power of attorney for real property. We do not typically use the short form statutory power of attorney, but the new one is much more comprehensive than the prior version. 

The new law makes it clear that copies of powers of attorney and not the original document are sufficient for agents to be able to transact business on behalf of their principals. Financial institutions were increasingly requiring agents to produce the original power of attorney, with original signatures.

The new law also specifically states that the power of attorney does not have to be recorded to be effective unless it is being used to transfer real property. I do not know how financial institutions will respond to this change. I expect that most or all of them will continue to require recording. But the law is clear that failure to record the power of attorney is not a valid reason to refuse to accept a power of attorney after January 1, 2018.

As with the prior law, anyone who unreasonably refuses to accept a power of attorney may be exposed to liability for doing so. There are a lot of exceptions to this. But you have to have a valid reason for refusing. I have seen a lot of invalid reasons in the past. 

There have always been questions about gifting with a power of attorney. The new law clarifies that the power of an agent to make gifts must be specifically stated in the documents. The requirement that the agent cannot make gifts to himself without explicit authority helps to prevent the agent from misusing the funds of the principal.

Under the new law, a financial power of attorney is by definition “durable,” meaning it is still active even though the principal is incompetent, even though it may not state explicitly it is durable. Under the former law, if the principal becomes mentally incompetent, the agent’s authority terminates, unless the instrument specifically states explicitly it is durable.

The power of an agent terminates if there is a judgment of absolute divorce between a principal and the agent, unless the instrument provides that the agency continues after divorce. This was not the law previously. This doesn't address the common situation where spouses are separated, but not divorced. If you are separated and do not want your spouse to handle your financial affairs, you should revoke your power of attorney. Of course, this isn't always the case. I am surprised by the number of clients who tell me that they don't want to be married anymore, but that their ex spouse is the best person to make financial or medical decisions if they can't do it themselves. 

There is a lot more to the new law. If you have a power of attorney that was executed prior to January 1, 2018, you should consider executing a new power of attorney under the new law. While powers of attorney that were effective under the old law are supposed to remain effective, they lack the advantages of the new law and over time may be increasingly hard to use.