Do you have a plan in place if you become incapacitated and can no longer manage your financial or medical affairs? A durable power of attorney, which is a document that designates an agent to act on your behalf, is one way to allow your family to assist should you become incapacitated.  

An alternative that’s often costlier is a court-supervised guardianship, which is a public proceeding as to medical and financial records and can highlight a family’s struggles.  

On Jan. 1, Washington’s DPA statute changed significantly from its original enactment in 1974. The original statute was intended to provide a tool to manage a person’s affairs economically upon incapacity and to provide a degree of privacy not provided by a court-supervised guardianship. The lack of court supervision came at a cost—abuse of power and resistance by institutional third parties to recognize the power of attorney.

Any power of attorney grants authority by the principal, or the person creating the document. Also, it designates an agent to act on behalf of the principal and grants powers or restrictions. Power of attorney says whether the document is durable and continues even if a principal becomes incapacitated or is nondurable. It might be granted for a limited period of time or a specific action and can be triggered by specific events.

Most importantly, all powers of attorney cease to be effective upon a principal’s death. In other words, an agent can’t rely upon the durable power of attorney to transfer or manage assets of the principal once the principal has passed away.  

The new statute doesn’t apply to certain documents, such as a power of attorney given to a creditor, a proxy, or delegation of voting rights for an entity, or a power of attorney created by a government or its subdivisions or agencies. A DPA signed in a state other than Washington state is valid in Washington state if it is valid in the state where it was signed or is a military DPA.  A photocopy or electronically transmitted copy of an original has the same effect as an original. 

The new statute is intended to increase the usefulness of a DPA, address an agent’s potential abuse of a principal, clarify an agent’s role, and protect third parties dealing with a DPA agent.

Here are the most significant new provisions:

•A principal must sign and date a DPA, and, now, the DPA must also be acknowledged by a notary or attested to by at least two competent witnesses.

•A DPA is “durable” only if stated expressly in the document. Making a power of attorney “durable” means that an agent’s powers continue even when the principal becomes incapacitated. A nondurable power of attorney isn’t effective during any period in which a principal is incapacitated. 

Accordingly, if you have a power of attorney that fails to state expressly that it is durable, then it could defeat the whole purpose of having a power of attorney, which is to plan for incapacity. 

•A DPA is effective when it is signed, unless the principal sets a future effective date or conditions its effectiveness upon the occurrence of a future event. The power of attorney automatically terminates as to the principal’s spouse or registered domestic partner upon the filing of a petition for annulment, dissolution, or legal separation. The rationale is that the principal most likely doesn’t intend for the former spouse or partner to continue having the powers granted to them.  

•Co-agents may delegate among themselves, but must act jointly unless the DPA states otherwise. Third parties may request joint action even if the DPA states otherwise. That means that if the principal designates more than one agent, they might not be able to take action without unanimous agreement. If this isn’t the intention, the DPA should set out when joint action isn’t required.  

•A DPA terminates upon appointment of another fiduciary to manage the principal’s property, such as a court appointed guardian.  

•An agent’s fiduciary duties to the principal specifically are set out in the statute: Act in accordance with the principal’s reasonable expectations, act in good faith, and act only within the scope of authority granted in the DPA. If a DPA is ambiguous as to the power granted, that power doesn’t exist.

Therefore, it’s important to clearly set out the agent’s powers in the DPA. The use of the term “all of the powers that I might use” is ambiguous. An agent has a general duty to keep receipts and an accurate financial accounting, but any request by a guardian, conservator, or another fiduciary to view this financial information must be related reasonably to that fiduciary’s duties.  

•The new statute is more specific as to an agent’s authority to deal with financial and real property matters, and a new health-care-matters section is added.  

•The principal may exonerate an agent from liability for gross negligence but not dishonesty with an improper motive or if the exoneration from liability was obtained by the agent’s abuse of a confidence or fiduciary relationship with the principal.

•An agent can delegate his or her authority under the DPA, but can’t delegate liability for violation of the agent’s duties. A court has more authority to review an agent’s action.

•The new statute provides clarification as to an agent’s ability to make health care decisions for the principal’s minor children. It also provides clarification as to an agent’s certification to third-parties regarding the authority of the agent to act for the principal under the DPA.

An agent may do any one or more of the following only if the DPA expressly grants the power: 

•Create, amend, revoke, or terminate any inter vivos trust—sometimes called a living trust—created by the principal.

*Make a gift from the principal’s assets.

•Create or change rights of survivorship or a beneficiary designation applicable to a financial account or asset of the principal.

•Delegate some, but not all, of the authority under the DPA, except as provided by statute.

•Waive the principal’s right to be a beneficiary under a joint and survivor annuity.

•Exercise fiduciary powers that the principal could delegate.

•Exercise a power of appointment in favor of anyone other than the principal.

•Create, amend, or revoke a community property agreement.

•Make a provision for the nonprobate transfer at death contained in a    nontestamentary document such as a transfer-or-pay-on-death account.

•Make health care decisions for or give informed consent on the principal’s behalf.

An agent who isn’t an ancestor, spouse, registered domestic partner, or descendant of the principal, may not make a gift to the agent or certain other listed parties. The agent is entitled to reimbursement of reasonably incurred expenses and reasonable compensation. 

The new statute specifically defines various powers, including those of a general matter; real property; tangible personal property; stocks, bonds, and financial investments; banks and financial institutions; operation of a business; insurance and annuities; estate, trust, and the beneficiary interests; claims and litigation; and retirement benefits. 

The statute applies to all DPAs, even if executed prior to the effective date. 

Here’s the bottom line: If you have a DPA, it should be reviewed and, if necessary, you should consult a qualified estate-planning attorney, so that it can be revised to comply with the statute.   

If you don’t have a DPA, you should contact a qualified estate-planning attorney regarding this important planning tool. Use extreme caution when considering a form from the internet. Is it state-specific? Does it comply with Washington state law? Is it too generic? Will it accomplish your purposes? Oftentimes, more problems are created than solved by relying on unqualified advisers or internet forms.  

Paul D. Fitzpatrick and Kjirstin J. Graham are estate-planning attorneys practicing in the Spokane office of Foster Pepper PLLC. They can be reached at paul.fitzpatrick@foster.com or kjirstin.graham@foster.com.