Greenberg Traurig Alert
Enhanced Enforceability is Available for Durable Powers of Attorney Signed After
October 1, 1995
October 9, 1995
A power of attorney is an instrument by which you designate another person (your
attorney-in-fact) to perform a broad variety of acts on your behalf. A power of attorney
is "durable" if it specifically provides that the authority of the
attorney-in-fact continues after you become disabled or incompetent.
A durable power of attorney is an important part of your estate plan, especially if you
have not put your assets in a revocable trust. If you become seriously ill or
incapacitated, your attorney-in-fact can manage your assets and pay your bills without the
need for a court-appointed guardian of your property. You may also authorize your
attorney-in-fact to make health care decisions for you, although we believe it is
preferable to use a more comprehensive document called a health care advance directive for
this purpose. Your attorney-in-fact may make gifts on your behalf if you specifically
authorize it in the power of attorney.
The practical problem in Florida (and many other states) has been getting a banker or
broker or other third party to honor the power of attorney. Third parties are often
reluctant to do so, believing it can only create problems for them if it turns out that
the attorney-in-fact is acting improperly or without authority. As a result, durable
powers of attorney have been of somewhat limited value in the real world.
The Florida legislature has gone a long way to solving this problem, in addition to
cleaning up a number of other deficiencies in the existing law. A new statute encourages
the use of durable powers of attorney by giving protection to third parties who act in
reliance on it. Third parties cannot be held liable if they act in good faith upon the
representations of the attorney-in-fact. A third party may ask the attorney-in-fact to
provide an affidavit stating that, as far as the attorney-in-fact knows, the power of
attorney has not been revoked or suspended, but the third party is protected without the
In addition to giving the incentive of enhanced protection, the statute provides the
persuasive force of legal sanctions against uncooperative third parties. A third party who
unreasonably refuses to recognize the authority of the attorney-in-fact is liable for
damages and costs, including attorneys' fees. This should compel third parties to work
with your attorney-in-fact.
The new law applies only to powers of attorney executed on or after October 1, 1995. We
have modified our forms consistent with the changes in the law, and encourage you to take
advantage of this positive development.
Beneficiaries of Trusts With Powers of Withdrawal (Typically Life Insurance Trusts)
Must Receive Contemporaneous Notice of Each Addition
Many people have created irrevocable trusts to receive annual gifts to children or
grandchildren within the limits of the annual gift tax exclusion ($10,000 per descendant
or $20,000 for a married couple).
In general, to qualify for the annual gift tax exclusion, the gift must give the
beneficiary a "present interest" in the property given. Under current tax law,
one of the ways that gifts to trusts can qualify for the annual exclusion is by giving the
trust beneficiaries the right to withdraw their share of any additions to the trust for a
short period of time. Nearly all life insurance trusts and many other trusts for children,
grandchildren, etc., give the beneficiaries such rights of withdrawal, which are commonly
known as "Crummey powers" (named for the court case authorizing them). Crummey
powers are effective only if the beneficiary has knowledge of his right to make the
withdrawal. Until now, it was generally thought that this requirement could be satisfied
by giving each beneficiary notice of the first transfer to the trust and obtaining the
beneficiary's waiver of the right to notices of future additions.
However, the Internal Revenue Service has recently taken the position in a private
letter ruling that without contemporaneous notice of each addition to the trust (which
would include the direct payment of premiums with respect to any insurance policy owned by
the trust), the Crummey powers will not be effective to qualify those additions for the
annual exclusion. The government's theory is that without current notice, the beneficiary
does not know of his rights in the property and therefore has no present interest.
This private ruling is not binding precedent. But it is an indication of the IRS'
current attitude and the position it might take in a future dispute. Thus, we think the
prudent approach is to give notice to each beneficiary with a right of withdrawal every
time property is transferred (or deemed transferred, such as by making a premium payment
directly to the insurer) to the trust. We can provide you with a form letter for this
purpose if you require one.
This GT ALERT is issued for informational purposes only and is not intended
to be construed or used as general legal advice. Greenberg Traurig attorneys provide
practical, result-oriented strategies and solutions tailored to meet our clients’
individual legal needs.