February 14, 2017
On January 1, 2017, the South Carolina Uniform Power of Attorney Act (the “Act”, codified as S.C. Code Ann. 62-8-101 through 62-8-403) replaced the South Carolina Code’s former power of attorney provisions located in Sections 62-5-501 through 62-5-505. The Act was modeled after the Uniform Power of Attorney Act ("UPOAA") and was passed by the South Carolina General Assembly on June 2, 2016, and signed into law by Governor Nikki Haley on June 9, 2016. The Act is broken down into five Parts.
Part 1 of the Act contains all of the general provisions that pertain to creation and use of a power of attorney. Part 2 of the Act provides default definitions for the various areas of authority that can be granted to an agent. Moreover, Part 2 details agent authority that must be granted with express language, given the sensitive nature of the particular authority. Part 3 of the Act would have been the landing spot for some variation of Article 3 of the UPOAA, which contains an optional statutory form designed for use by lay persons as well as lawyers. However, the South Carolina General Assembly chose not to adopt Article 3, instead opting to reserve it for possible later use. Part 4 of the Act contains miscellaneous provisions concerning the relationship of the Act to other law and pre-existing powers of attorney. Finally, Part 5 of the Act lays out the South Carolina Statutory Health Care Power of Attorney Act.
The Reporter’s Comment says that the UPOAA is necessary because over the years many states adopted non-uniform provisions to deal with issues on which the Uniform Probate Code and the original Uniform Durable Power of Attorney Act were silent, such as the authority of multiple agents and the impact of dissolution or annulment of the principal’s marriage to the agent, among others. The UPOAA, the Reporters commented, provides uniformity on such issues, and enhances the usefulness of durable powers while protecting the principal, the agent, and those who deal with the agent. Although some form of the prior South Carolina code sections on powers of attorney are retained, the Reporters felt that the UPOAA, coupled with the retained provisions of South Carolina law, however minute, help address the surrogate decision making issues facing our aging society, while at the same time serving the Act’s overarching goal of protecting the principal, the agent, and those who deal with the agent.
I. Replaced Definitions
The legislation’s drafters decided to replace several key definitions from the former South Carolina power of attorney laws. The term “agent” replaces the term “attorney in fact” and “incapacity” replaces “disability”. The drafters preferred “agent” because it avoids confusion about the meaning of the term and the difference between an “attorney in fact” and an “attorney at law.”
With regard to “disability”, the drafters felt that the term was too broad. The fact that one is disabled, i.e., has a handicap, does not necessarily render that person totally incapable of property and business management. The Reporter’s Comment says that the term “incapacity”, instead, stresses the operative consequences of the individual’s impairment/inability to manage his or her property and business affairs, rather than the impairment itself.
One other definition of note is the term “principal”, which is defined to incorporate South Carolina’s requirement that the person executing the power of attorney or a revocation of a power of attorney must have contractual capacity. See In re Thames, 344 S.C. 564 (Ct. App. 2001); see also Gaddy v. Douglass, 359 S.C. 329 (Ct. App. 2004).
II. Formation and Cancellation
As far as executing a valid power of attorney, nothing much has changed. The Act retains the requirement that the principal’s act of signing the power of attorney must be witnessed in the same manner as a will in South Carolina (two witnesses) and acknowledged or proved pursuant to Section 30-5-30 (Prerequisites to recording). The Act requires that the execution of the power of attorney be acknowledged by the principal in the presence of a notary or attested to by one of the witnesses in the presence of a notary. Moreover, the Act creates a default rule that a power of attorney is effective when executed as described above, unless the principal provides in the power of attorney that it becomes effective at a future date or upon the occurrence of a future event or contingency (a “springing” power of attorney). It should be noted that if the principal becomes incapacitated, then the power of attorney must be recorded in the same manner as a deed, or the agent no longer has authority to act on behalf of the principal.
Termination of the power of attorney can occur in a number of ways under the Act, including if the principal dies, revokes the power attorney, or becomes incapacitated when the power of attorney is not durable, among others. An agent may also choose in certain circumstances to resign from his duties under a power of attorney. Whether a power of attorney terminates when the principal becomes incapacitated due to the power’s lack of durability is specifically worth highlighting, because the Act creates a new default rule providing automatic durability unless the power of attorney explicitly provides otherwise. This default rule is the reverse of South Carolina’s previous approach, and is based on the assumption that most principals prefer durability as a hedge against the need for conservatorship or guardianship.
Acceptance of a power of attorney appointment marks the commencement of the agency relationship and the imposition of fiduciary duties. The Act articulates an agent’s minimum mandatory duties, as well as default duties that can be modified or omitted by the principal. The minimum duties owed to the principal of good faith and acting only within the scope of authority and in accordance with the principal’s reasonable expectations remain standard. Said duties cannot be altered in the power of attorney. Default rules that can be altered in the power of attorney include acting loyally for the principal’s benefit, acting so as to not create a conflict of interest, maintain the principal’s records and attempt to preserve the principal’s estate plan, among others. The Reporter’s Comment provides further helpful analysis for navigating the statutory language of each duty owed to the principals, and the standards used in determining how those duties are tailored.
Finally, the Act gives a principal the option to limit the agent’s liability for breach of duty in the power of attorney. Such provision is binding on the principal except to the extent the provision relieves the agent of liability for a breach of duty committed dishonestly, in bad faith, with reckless indifference, through willful misconduct, through gross negligence, or with actual fraud. Thus, while such a provision can limit an agent’s liability for honest mistakes, intentional and willful misconduct will not be forgiven pursuant to such a provision in the power of attorney.
III. Multiple Agents
Certain sections of the Act address interesting issues pertaining to situations where the principal and agent are accompanied by other individuals. One such section, Section 62-8-111, is of particular importance because it addresses problems that were not addressed by the former Code provisions, and because it helps lawyers and laypersons consider issues they otherwise might have not considered when drafting a power of attorney.
Section 62-8-111 deals with principals who designate two or more persons as co-agents. The Act adopts the default position that if a principal names co-agents, each co-agent may exercise their authority independently of the other unless otherwise stated. The Reporter’s Comment says that the Act adopted this default provision to discourage the practice of executing separate, co-extensive powers of attorney in favor of different agents, and to facilitate transactions with persons who are reluctant to accept a power of attorney from only one of two or more named agents. Moreover, the Act provides that the scope of authority granted to the original agent can be carried forward by successors designated by the principal. The Reporter’s Comment warns that a principal may want to consider whether a successor agent is an appropriate person to exercise the authority given to the original agent, such as the authority to make gifts, create or change survivorship beneficiary designations, or manage real property.
Finally, the Act does not hold co-agents liable for the other’s actions, unless the agent participates in or conceals the breach of fiduciary duty committed by the other agent. However, the Act does require a co-agent who has actual knowledge of the other co-agent’s bad acts to notify the principal or, if the principal is incapacitated, take reasonably appropriate action to safeguard the principal’s best interests.
IV. Grants of General and Specific Authority
The Act provides an intricate system that lawyers should pay particular attention to when drafting powers of attorney for clients. Sections 62-8-204 through 62-8-217 of the Act describe authority with respect to various subject matters, which may be incorporated by specific reference in the power of attorney to the sections whose authority the principal wishes to grant to the agent. Incorporation is accomplished by providing a citation in the power of attorney to the section in which the authority is described. For example, language in a power of attorney incorporating Section 62-8-204 by reference gives the agent a grant of general authority with respect to real property, which authorizes the agent to execute any of the acts listed in Section 62-8-204 (sell, mortgage, conserve an interest, etc.).
Other subject matters under the Act (62-8-205 through 217) include personal property, stocks and bonds, authority relating to banks and other financial institutions, operation of a business entity, insurance and annuities, estates and trusts, claims and litigation, personal and family maintenance, government benefits, employee benefit plans, taxes, and gifts. Of course, any of the statutory language incorporated by reference in the power of attorney can be specifically modified.
However, the Act contains one important caveat to those general grants of authority. Pursuant to Section 62-8-201, notwithstanding any general authority bestowed on the agent by means of incorporating by reference any of the sections discussed above, an agent under a power attorney may only take certain actions when the power of attorney specifically grants the agent the authority to do so. Such specific grants of authority include the authority to create/amend/revoke/terminate a trust, make a gift, create or change a beneficiary designation, and access a safe deposit box or vault leased by the principal, among others.
Finally, notwithstanding any specific grant of authority pursuant to Section 62-8-201, that section goes on to provide that, unless the power of attorney otherwise provides, only an agent who is an ancestor, spouse, or descendant of the principal, may exercise authority under a power of attorney to create in the agent, or in an individual to whom the agent owes a legal obligation of support, an interest in the principal’s property, whether by gift, right of survivorship, beneficiary designation, disclaimer, or otherwise. The Reporter’s Comment provides a helpful example: a non-relative agent with gift making authority could not make a gift to the agent or a dependent of the agent without the principal’s express authority in the power of attorney. In contrast, a spouse-agent with express gift-making authority could implement the principal’s expectation that annual family gifts be continued without additional authority in the power of attorney.
V. Health Care Powers of Attorney
Finally, the provisions of South Carolina’s Health Care Power of Attorney statute, formerly found at Section 62-5-504, are now renumbered as 62-5-501 through 62-5-518. However, the substance of former Section 62-5-504 remains completely unchanged.
Alex Serkes is an Associate in the Columbia office and focuses his practice on commercial real estate and corporate law.