Florida Durable Powers of Attorney: Exploring the Limits of an Agent’s Authority
Durable powers of attorney have become increasingly important instruments in estate and Medicaid planning in recent years, particularly since the substantial revision to the law made in 1995. Recently the law was amended to permit “springing” durable powers of attorney, which should further enhance the use of these instruments. Now that estate planners in Florida have had sufficient time to become acquainted with the law relating to durable powers of attorney, maybe it is time to examine some of the limitations that may apply with these documents.
Extent of Attorney-in-fact’s Authority
Most attorneys, if asked to explain the extent of an attorney-in-fact’s authority under Florida law, would probably respond that the attorney-in-fact has all powers to the extent “authorized and specifically enumerated” in the durable power of attorney. Such an answer is not entirely correct; the complete correct response is an attorney-in-fact has the authority to perform every act authorized and specifically enumerated in the durable power of attorney except when such acts are limited by either F.S. §709.08(7), other applicable law, or by the durable power of attorney.1
F.S. §709.08(7)(a) clearly states that there are limits to an agent’s authority. No matter what authority the durable power of attorney might otherwise appear to grant, there are certain acts that cannot under any circumstances be performed by an attorney-in-fact. The purpose of this article is to explore these limitations under either F.S. §709.08(7)(b) or “other applicable law.” Although F.S. §709.08(a) also states that actions can be limited by the durable power of attorney, such limiting language would appear to be unnecessary, considering that such actions could be limited by simply not authorizing and specifically enumerating them in the durable power of attorney.
F.S. §709.08(7)(b)5 and the Doctrine of the Last Antecedent
F.S. §709.08(7)(b)5 reads as follows:
Notwithstanding the provisions of this section, an attorney in fact may not:
5. Create, amend, modify, or revoke any documents 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. . . .
There appears to be some confusion about what the above provision actually permits. For example, some lawyers read this provision as permitting the amending, modifying, or revoking of a revocable trust as long as there is specific language included in the durable power of attorney expressly authorizing such action. However, such an interpretation ignores a basic rule of grammar and a rule that courts from other states have formulated known as the doctrine of the last antecedent.2 Under this doctrine, courts presume that drafters place modifying phrases next to what they intended to modify. The doctrine states: “Where no contrary intention appears in a statute, relative and qualifying words and phrases, both grammatically and legally, refer to the last antecedent.”3 The only situation in which a contrary intention exists in a statute is when a comma is included between the qualifying phrase and the remainder of the sentence. Nothing else constitutes contrary intention.
In F.S. §709.08(7)(b)5 the clause “unless expressly authorized by the power of attorney” immediately follows “transfer assets to an existing trust created by the principal.” From a grammatical standpoint and under the doctrine of the last antecedent, that is the only action that can be “expressly authorized” by the durable power of attorney. If the Florida Legislature wanted the “unless” clause to modify all three actions, all it would have had to do was include a comma between the words “principal” and “unless.”
Whether the legislature wanted to permit all three actions to be expressly authorized is debatable. On the one hand, the law governing guardianships only permits a guardian to deal with assets such as jointly owned bank accounts or ITF accounts if the guardian has a court order.4 Since durable powers of attorney are intended to be alternatives to guardianship proceedings, presumably the legislature would have wanted a similar requirement with durable powers of attorney.
It can be argued that the Florida Legislature intended the phrase “unless expressly authorized by the power of attorney” to apply not only to transfers to existing trusts but also to the other two actions mentioned in that subparagraph. In this respect, while every other numbered subparagraph of F.S. §709.08(7)(b) only deals with one type of action, F.S. §709.08(7)(b)5 mentions three separate and distinct actions. The fact that the legislature grouped these three actions together might be an indication that it wanted to permit all three types of actions to be “expressly authorized” by the principal if that is what the durable power of attorney specifically states.
In interpreting statutes, punctuation is considered to be the most fallible and least reliable indication of the legislature’s intent.5 However, the Florida Supreme Court has stated that a court has no authority to insert punctuation marks, specifically commas, which are not in statutes.6 Therefore, considering the present punctuation (or lack of it) in F.S. §709.08(7)5, the only grammatically correct interpretation of this provision is that an agent cannot under any circumstances create, amend, modify, or revoke any document or other disposition effective at the principal’s death, notwithstanding anything to the contrary stated in the durable power of attorney. Such an interpretation has certain interesting consequences that are explored in more detail below.
Limitations of Power Because of F.S.§709.08(7)(b)5
F.S. §709.08(7)(b) sets forth certain actions that the attorney-in-fact may not do under any circumstances. As explained above, among these prohibited actions is any action that would create, amend, or modify any document or other disposition effective at the principal’s death.
Although F.S. §709.08(7)(b) does not provide definitions, a document effective at the principal’s death would almost certainly be a revocable trust or a similar instrument. But just what is meant by the phrase “disposition effective at the principal’s death”? The following discussion will examine some of the dispositions presumably encompassed by this phrase.
• Power over Jointly Owned Property and Similar Accounts
F.S. §709.08(6) specifically provides that a durable power of attorney applies to all jointly owned property of a principal including tenancies by the entireties. However, since these type of accounts have survivorship features at the principal’s death, such accounts appear to be dispositions effective at the principal’s death and therefore any apparent authority over such accounts must be read in conjunction with F.S. §709.08(7)(b)5. Since an attorney-in-fact cannot modify a disposition effective at the principal’s death, he is arguably prevented from taking any action over jointly owned property that would change the dispositive aspect of these accounts. Consequently, although he would be able to sell (with the other joint tenant) the principal’s jointly owned property, it appears that F.S. §709.08(7)(b)5 would require that the proceeds of sale be put into another survivorship account between the same joint tenants.7 Any action removing money from joint names (even to pay the principal’s bills) would be modifying a disposition effective at the principal’s death in violation of F.S. §709.08(7)(b)5. Likewise, if a bank account is in the principal’s name in trust for someone or a payable on death account, the removal of money from such an account also appears to violate F.S. §709.08(7)(b)5 as modifying a disposition effective at the principal’s death.
The above reasoning is consistent with what has previously been stated regarding the restrictions on the authority of a guardian over assets such as jointly owned bank accounts or ITF accounts. With such assets, the guardian has to obtain a court order before dealing with same. Presumably, since a durable power of attorney is intended to be an alternative to a guardianship, the legislature wanted a similar approach when these types of assets are involved.
In light of F.S. §709.08(7)(b)5, there are situations in which a durable power of attorney arguably might be totally ineffective in handling the financial affairs of an individual. Consider, for example, the situation in which, because the principal has no foreseeable estate tax liability, he chooses to put all his property in either joint bank accounts (with someone other than the agent as the other joint tenant), ITF accounts, or POD accounts ( i.e., what sometimes is called the “poor man’s estate plan”). Applying the statute literally in this situation, the agent would apparently have no authority under the durable power of attorney to use any of the principal’s bank accounts to provide for the principal since such action would be modifying dispositions effective at the principal’s death. Although it is unlikely that a court would find fault with an agent in such a situation as long as the agent acts reasonably and does not favor himself, it must be remembered that banks have never been particularly fond of powers of attorney and have tried on many occasions to resist their use. A bank might use the above reasoning to attempt to deny the agent access to the principal’s bank accounts that are either jointly held (with someone other than the agent), ITF accounts, or POD accounts. Consequently, this might be something that the legislature would want to clarify.
• Power to Make Elections, Deal With, and Remove Funds from any Retirement Plans including IRAs
This power is a very common specifically enumerated power in many durable powers of attorney. But, there is a potential problem if there is a named beneficiary of the retirement plan and the authority the agent is given includes the power to remove funds from the retirement plan or the IRA. In that case, such action could be considered to be action which is modifying a disposition effective at the decedent’s death.
One situation in which it might be beneficial to remove funds from a retirement plan or IRA is where the medical or other itemized income tax deductions of the principal during a certain year are so large that they exceed the principal’s income for that year. In such a case it would be clearly advantageous from an income tax standpoint to withdraw funds from the IRA to generate additional taxable income and thereby take advantage of the excess deductions for that year which otherwise would be lost. However, in light of F.S. §709.08(7)(b)5, such action is not permissible which would waste a valuable tax saving opportunity. The only way of removing funds from the IRA would be to appoint a guardian to make the withdrawal.
Since in most cases a beneficiary would be named for the principal’s retirement plan, by including the authority to withdraw funds from retirement plans, all you are doing is possibly confusing the agent regarding the actual extent of his authority, which could result in an inadvertent exercise.
Another potentially problematic power would be a power to borrow against any existing life insurance policy where the principal is the owner thereof. The exercise of such a power could be viewed as modifying a disposition effective at the principal’s death, which would also be in violation of F.S. §709.08(7)(b)5.
• Power to Make Gifts from a Revocable Trust for Medicaid Purposes
In OBRA 1993 Congress made a change to the Medicaid rules which affects transfers from revocable trusts. After this legislation, any gifts made from a revocable trust are subject to a new five-year “look back” period, as opposed to a three-year “look back” period that applies to nontrust gifts. As a result of this new rule, a gift made from a trust, depending upon the size of the gift, could prevent a potential Medicaid applicant from applying for Medicaid for up to five years from the date of the transfer and also, depending on the size of the gift, could result in an additional disqualification period extending even more than five years from the date of the transfer if the applicant applied for Medicaid before the five-year period expires.
One way that has been recommended to avoid this additional two-year “look back” period ( i.e., five years vs. three years) is to include in a durable power of attorney the authority to make withdrawals from the trust for purposes of making gifts, withdraw the assets from the trust, and then make the gift from those withdrawn assets. The problem with this approach, however, is that a revocable trust is a testamentary disposition and F.S. §709.08(7)(b)5 specifically prohibits an attorney-in-fact from modifying or revoking any document or other disposition effective at the principal’s death. Presumably, by making the withdrawal, the agent would be deemed to be making either a partial revocation of the trust (to the extent of the withdrawal) or at least making a modification of a disposition effective at the principal’s death in violation of F.S. §709.08(7)(b)5. This is just another example of how an agent might not be able to exercise certain beneficial powers set forth in the durable power of attorney because of F.S. §709.08(7) and may be another situation in which the appointment of a guardian to make the withdrawal might be the only viable alternative.
If the agent goes ahead and exercises the withdrawal power (whether or not he is aware that the power is not exercisable), what is the effect of same? Since such a withdrawal is in violation of F.S. §709.08(7)(b), it is outside the scope of the agent’s authority to exercise. Any action by an agent that is outside the scope of his or her authority is void under Florida law.8 This means that the trustee has the right to reclaim any amounts improperly withdrawn pursuant to this power. Consequently, the state should be able to step into the shoes of the trustee to assert its Medicaid claim against the recipients of the gifts.
Limitations of Agent’s Power Because of F.S. §709.08(7)(b)4
• Power to Exercise General or Special Testamentary Power of Appointment Held by the Principal
FS §709.08(6) specifically states that a durable power of attorney applies to any interest in property owned by the principal, including all property over which a principal holds either a general, limited, or special power of appointment. However, if what is involved is a testamentary power of appointment, F.S. §709.08(7)(b)4 comes into play. Because a testamentary power of appointment is, by its very nature, only exercisable by means of a will or codicil and because under F.S. §709.08(7)(b)4 an attorney-in-fact cannot under any circumstance execute a will or codicil on behalf of the principal, the agent is effectively prevented from exercising either a testamentary special or general power of appointment notwithstanding what F.S. §709.08(6) might otherwise seem to imply. So as not to confuse the agent in this regard, it might be a good idea to specifically state in the durable power of attorney that the power to exercise testamentary special and general powers of appointment is one of those powers that the agent is expressly prohibited from exercising.
Limitations of Agent’s Power Because of Other Applicable Law
• Power to Make Gifts to Oneself
One of the most important provisions that should be discussed with any client for inclusion in a durable power of attorney is the power to make gifts. In a larger estate this power is important as a way of reducing the principal’s estate subject to federal estate taxes upon death. This power is equally important in smaller estates as a way of preserving at least part of the principal’s estate for his or her family if the principal ever needs to take advantage of Florida’s Medicaid program to pay for his or her nursing home expenses. Since usually the attorney-in-fact is either the principal’s spouse, a child, or someone else who is an object of the principal’s bounty, the principal will in most cases want to include the attorney-in-fact as one of the permissible recipients of any gifts made.
Previous articles have dealt with the possible gift and estate tax consequences to the agent whenever the agent is given the power to make gifts to anyone including himself.9 Although these potential tax consequences are a distinct possibility and can be significant, such consequences are predicated on the assumption that the agent has the authority to make gifts to himself. However, in light of the 1995 revision to F.S. §709.08, this might no longer be the case.
Prior to that revision, a number of cases were decided in Florida that dealt with the issue of making gifts under a power of attorney. These cases seemed to indicate that as long as the principal expressly conferred in the power of attorney the power to make gifts, then gifts could be made, even to the agent.10 However, in 1995, the legislature in enacting §709.08(7) used the following language. “ Except as otherwise limited. . . , by other applicable law, . . . , an attorney in fact has full authority to perform every act authorized and specifically enumerated. . . . ”
The above provision is clear and unambiguous and prescribes the absolute limits or scope of an agent’s authority. As indicated in the above excerpt, an act limited by other applicable law is beyond the power of an agent to exercise; this is the rule no matter what the principal may otherwise provide in the durable power of attorney.
One example of other applicable law that would limit an attorney-in-fact’s authority is F.S. §55.05. This statute makes null and void any power of attorney that authorizes an attorney-in-fact to confess or suffer judgment to pass by default or otherwise. Another less obvious example of “other applicable law” that limits an agent’s authority is the case law pertaining to the law of agency. Under the law of agency, an agent owes certain fiduciary duties to the principal. Among these duties is the duty not to act adversely to the interests of the principal. Florida jurisprudence explains this duty as follows:
No principal of the law is more firmly established than that which forbids one who undertakes to act as agent for another from acting for himself or herself in relation to the subject matter of the agency, or placing himself or herself in a position adverse to or in conflict with the interests of the principal.11
A power to make gifts of the principal’s property to oneself is a situation in which the agent is acting for himself in relation to the subject matter of the agency ( i.e., the principal’s money). Although it can be argued that making gifts for estate planning and Medicaid purposes is merely carrying out the interests and wishes of the principal as opposed to being in conflict with them, it is the potential for conflict that the law of agency seeks to avoid. As the Florida Supreme Court indicated in City of Coral Gables v. Coral Gables, 119 Fla. 30, 37, 160 So. 476, 479 (Fla. 1935):
The two positions impose different obligations, and their union would at once raise a conflict between interest and duty, and constituted as humanity is, in the majority of cases, duty would be overborne in the struggle.12
In the cases permitting gifts which were decided before the 1995 revision of Ch. 708.09, the courts apparently decided that a principal could choose to release the agent from the abovementioned fiduciary duty as long as the power of attorney expressly granted the authority to make gifts. However, after 1995, the literal language of F.S. §709.08(7)(a) appears to prohibit any such release.
If the above analysis seems confusing, the following summary may be helpful to understand why a lawyer should not include in a Florida durable power of attorney the power to make gifts to the agent (or to any member of his or her immediate family). To start with, the Florida Supreme Court has recognized the common law rule that an agent is forbidden from acting for himself in connection with the subject matter of an agency.13 Exercising a power to make gifts to oneself is a situation in which the agent would be acting for himself in connection with the principal’s property. Taking into account the “other applicable law” limitation of F.S. §709.08(7)(a), a power to make gifts to oneself would not be an action an agent would be authorized to perform, or, stated in other terms, the exercise of such a power would be outside the scope of the agent’s authority. Consequently, if such a power is either inadvertently or purposely included in a Florida durable power of attorney, any conveyance pursuant to such a power would not only be voidable under Florida case law, it would in fact be void.14
There are undoubtedly many durable powers of attorney currently in circulation in which an agent is granted the authority to make gifts to himself. If an agent exercises such a power, there are at least two situations in which potentially adverse consequences may arise. The first of these situations is when the principal’s estate is either taxable or potentially taxable. For example, assume that the principal has two children, both of whom are married and both of whom have four children. If the principal had an estate of $1,360,000 and the child/agent made $10,000 gifts each year for three years to himself, his spouse, and his four children, and to his sister, her spouse, and her four children (a total of $360,000), one might think that there would be no estate tax due at the principal’s death in 2002 in light of the current $1,000,000 amount exempt from federal estate tax. Think again. Because the gifts to the agent and his family are outside the scope of the agent’s authority to make, they are void under Florida law15 and the $180,000 gifted to the agent and his family over the three-year period prior to the principal’s death is still part of both the principal’s probate estate and his gross estate for federal estate tax purposes. With reference to whether the IRS would pursue an opportunity such as this, the IRS has sought inclusion in the principal’s gross estate of property transferred pursuant to a durable power of attorney which did not contain specific authorization to make gifts and has at least two victories under this approach.16 An unauthorized power is analogous to the absence of a power, and therefore it should be presumed that the IRS would likewise contest any gifts made under the above circumstances. If the IRS is successful in this regard, this $180,000 inclusion in the principal’s gross estate would result in estate tax due in the year 2002 of approximately $74,000.
Another situation in which there could be problems is when the principal names one of his two children as his agent and the children do not get along with each other. Assume that the agent, under a power to make gifts to anyone including himself and not realizing that he cannot make gifts to himself, makes gifts of $50,000 to both himself and his brother during his father’s lifetime. After the principal’s death the other child could argue that the $50,000 of gifts to the agent are void and therefore they are still part of the principal’s probate estate. If the father’s will states that both children are to get one half of the estate, the other child could under this theory claim one half of the void gifts and attempt to get an additional $25,000 of the total estate. Hopefully, a court would use its equitable powers to prevent such a result. Consider, however, the potential recourse of an unpaid creditor under these circumstances in an otherwise insolvent estate.
There is a relatively simple way of getting around the above consequences. Have the principal name someone other than the agent as a special attorney-in-fact in the durable power of attorney whose sole duty and responsibility is to make gifts to the attorney-in-fact. If the special attorney-in-fact is either a brother or sister of the attorney-in-fact, a second advantage of this approach is that it provides a system of checks and balances over the agent’s power to make gifts which should be appreciated by all involved.
Powers of Appointment
As previously indicated, if the agent is given authority to exercise any testamentary special or general powers of appointment possessed by the principal, the agent cannot actually exercise the power since to do so he would have to execute either a will or a codicil on behalf of the principal, which F.S. §709.08(7)(b)4 specifically prohibits. In order for a power to be taxable to the agent the power must in fact be exercisable by the agent,17 so there should be no tax consequences with such a power no matter what the durable power of attorney might specifically provide.
An intervivos special or limited power of appointment, however, is one power of appointment that could result in tax consequences to the agent. Assume, for example, that the principal ( i.e., the agent’s mother) has a lifetime special power of appointment over a trust which permits her to appoint the trust corpus to any one or more of her children. Such a power would not cause tax consequences to the mother during her lifetime or to her estate upon her death as long as she does not exercise the power.18 But, what if one of her children is the attorney-in-fact under a springing durable power of attorney and the power has sprung? Assuming that the mother does not have a present interest in the trust ( i.e., an income interest), she has no interest in the trust that is adverse to the agent’s interest and that would bring the agent’s previously mentioned fiduciary duty into play. Looking at the essence of this situation, after the power has sprung, what the attorney-in-fact has is the power to appoint the entire trust property to anyone including himself. Such a power meets the textbook definition of a general power of appointment19 even though all his mother had was a nontaxable special power of appointment. By granting this power to the agent, you have created tax consequences to the agent where otherwise there would be none. Consequently, the power to exercise intervivos special powers of appointment is one power that should either be included on the list of the powers which the agent is specifically prohibited from exercising or should be modified so that it cannot be directly or indirectly exercised in favor of the agent.
There is one other admittedly unlikely situation in which there could be tax consequences when an agent is given the power to exercise a special inter vivos power of appointment possessed by the principal. This situation occurs when the principal ( i.e., the agent’s mother) is the income beneficiary under either a credit shelter trust or an irrevocable life insurance trust. In such a case, if the agent exercises this power in favor of his siblings (he could not exercise it in his favor because of the previously mentioned fiduciary duty not to take a position adverse to the principal), there could be transfer taxes to the principal under the rationale of In re Register, 83 T.C. 1 (1984). These consequences could be substantial depending on the circumstances of each case,20 and therefore due care must be exercised regarding the granting of such authority in the durable power of attorney.
Because of the abovementioned possible tax consequences and the confusion that can ensue, it might be better in the durable power of attorney to specifically prohibit an agent from exercising any powers of appointment possessed by the principal.
Conclusion
There is a common misconception that in Florida an attorney-in-fact has full authority over all of the principal’s assets to the extent authorized and specifically enumerated in the durable power of attorney. Presumably, at least part of this misconception can be traced to a misunderstanding of the effect of F.S. §709.08(6). But subsection (6) is only one part of F.S. §709.08 and therefore must only be read in conjunction with the entire statute. Hopefully, this article has served to clear up this point and will help to provide a better understanding of the actual extent of an attorney-in-fact’s authority under Florida law.
1 Fla. Stat. §709.08(7).
2 Block, Effective Legal Writing 55 (4th ed.); Davis v. Gibbs , 236 P.2d 545, 456 (1951); State v. Bailey , 121 P.2d, 821, 822 (1912).
3 Block, supra note 2, at 56.
4 Fla. Stat. §744.457; First National Bank of Tampa v. First Federal Savings & Loan Association of Tampa , 196 So. 2d 211 (Fla. 2d D.C.A. 1967).
5 Wagner v. Botts , 88 So. 2d 611(Fla. 1956).
6 Id .
7 Compare Fla. Stat. §744.457(1)(b) as it relates to joint accounts owned by spouses and tenancies by the entirety.
8 Johnson v. Fraccacreta , 348 So. 2d 570, 572 (1977); see also In re Estate of Bell , 573 So. 2d 57, 59 (1990); Kotsch v. Kotsch , 608 So. 2d 879, 881 (1992).
9 See Insel, Durable Power Can Alleviate Effects of Client’s Incapacity , 22 Estate Planning 37 (Jan./Feb. 1995), and Tiernan, Gift-Giving by an Agent Under a Durable Power of Attorney , 26 Estate Planning 372 (Oct. 1999).
10 Fraccacreta , 348 So. 2d at 572; see also Hodges v. Surratt , 366 So. 2d 768, 774 (1978); In the Matter of Rolater , 542 P.2d 219, 223 (1975); In re Estate of Bell , 573 So. 2d 57, 60 (1990).
11 2 Fla. Jur. 2d §91, p. 673.
12 See also Fisher v. Grady , 131 Fla. 1, 178 So. 852, 860 (Fla. 1937).
13 See also Fisher , 131 Fla. 1, 178 So. at 860.
14 Fraccacreta , 348 So.2d at 572; see also Bell , 573 So. 2d at 59; Kotsch ,608 So. 2d at 881.
15 Fraccacreta , 348 So.2d at 572; see also Bell , 573 So. 2d at 59; Kotsch , 608 So. 2d at 881.
16 Estate of Casey , 948 F.2d 895, 68 AFTR2d 91-6060 (CA-4, 1991), rev’g YCM 1989-511; Estate of Sylvia Swanson v. U.S. , Fed. Cir. No. 00-5079 (2001).
17 Compare Treas. Reg. 20.2041-3(b).
18 If she exercises the power, there could be tax consequences to her under the rational of Register if she had an income interest in the trust. See Estate of Register , 83 T.C. 1 (1984).
19 Treas. Reg. 20.2041-1(b).
20 See Tiernan, The Tax Consequences of Including Nongeneral Powers of Appointments in Trust Instruments , 93 J. Tax’n 35 (July 2000).
Peter B. Tiernan is a tax attorney in Margate. His practice focuses on the area of estate planning, probate, and taxation. He received his J.D. from the University of Florida College of Law and his master of law in taxation from the University of Miami School of Law. He is former chair of the trust and probate section of the Broward County Bar Association.
