Montana Lawyer April/May 2024

Representing an Agent Under a Financial Power of Attorney MOLLY CONSIDINE POWER OF ATTORNEY

There will come a time for most Montanans when they can no longer handle their finances, and they will need to rely on another to pay their bills and manage their affairs. We hope most Montanans will have the foresight to execute a financial power of attorney (“FPOA”) to cover this eventuality. An FPOA nominates an agent to manage the principal’s financial affairs. The agent is usually a family member who is well intentioned but uninformed about the fiduciary role he or she is being asked to assume. The purpose of this article is to provide a broad overview of Montana’s FPOA laws, as well as issue-spot some unexpected traps for the unwary. I. Show Me the FPOA, Please. In order to advise the agent appro priately, we need to start by reviewing the terms of the FPOA. The FPOA will describe the scope of the agent’s author ity. The following list is intended to be a guideline of what to look for in an FPOA: (1) Whether the agent’s authority is effective immediately or upon a triggering event (i.e., a springing FPOA); (2) Whether the proposed agent is the same person nominated to serve in the FPOA; (3) Whether the proposed agent is expected to serve alone or with another, and if with another, whether the co-agent wishes to serve and if this is a joint repre sentation requiring written consent in an engagement letter; (4) Whether the agent is entitled to compensation, reimbursement for expenses, or both; and (5) The specific powers the principal vested in the agent. Once we get answers to these ques tions, we can move on to a more substan tive discussion with the agent. II. Why Is the Agent Stepping in to Manage the Principal’s Assets? We need to know why the agent believes he or she should begin managing the principal’s assets. There are many rea sons why an agent might step in to serve, such as the principal’s incapacitation, preventing financial exploitation of the principal, or the principal’s loss of execu tive functioning. The “why” is critical to

understanding whether (1) the triggering provisions have been satisfied in a spring ing FPOA; and/or (2) the agent has the authority to take the necessary actions on behalf of the principal. In the most extreme cases, the “why” may reveal an improper purpose on the part of the agent. For example, an agent may wish to use the principal’s assets for agent’s benefit or the agent may disagree with how the principal is using his or her funds. In the latter example, we may need to advise the agent that the principal can make “bad” decisions regarding the prin cipal’s assets so long as the principal has capacity, understands the risks, and it’s not illegal or a transaction(s) that harm the principal. In these situations, regard less of what the FPOA says, the agent’s exercise of authority is unnecessary and unwarranted. III. The Agent’s Authority Under the FPOA . Assuming the agent is named in the document and has a proper basis for serv ing, we need to advise the agent on where the guardrails are located. The FPOA will identify what the agent can and cannot do on behalf of the principal. Montana provides a statutory FPOA at § 72-31-353, MCA, that is much like a check-the-box form. Any selections made by the princi pal on that form correspond to a specific statutory provision detailing the agent’s authority with respect to that power. § 72 31-339 – 72-31-351, MCA. For example, if the FPOA authorizes the agent to have general authority over real property, then we should look to § 72-31-339, MCA, because it enumerates all of the agent’s authority with respect to real property under Montana law. A principal must act expressly and deliberately in granting an agent certain powers under Montana law in order for the agent’s authority to be effective. § 72-31-352, MCA, provides that gift ing must be specifically identified in the FPOA to permit an agent to give away the principal’s property. Even if the FPOA includes a gifting power, and unless the FPOA says otherwise, § 72-31-352, MCA, limits the type of gifting the agent can do on behalf of the principal. The agent may

gift the annual exclusion amount set by the Internal Revenue Service or consent to gift-splitting with the principal’s spouse not to exceed the aggregate annual gift tax exclusions for both spouses. Unless the FPOA says otherwise, and assuming the gift was in 2024, a gifting provision in an FPOA would allow an agent to gift $18,000 to an individual or split the gift with the principal’s spouse and gift $36,000 to an individual. Notwithstanding these provisions, subparagraph (3) of § 72-31-352, MCA, puts further restrictions on the agent when making the gift. Specifically, the agent must actually know that the gift is consistent with the principal’s objectives, and if the agent does not have that knowl edge, then the agent needs to demonstrate that the gift is consistent with the princi pal’s best interests based on “all relevant factors.” The statute then provides a non-exhaustive list of relevant factors to consider, as more fully described below: (1) The value and nature of the prin cipal’s property; (2) The principal’s foreseeable obli gations and need for maintenance; (3) Minimization of taxes, including income, estate, inheritance, generation skipping transfer, and gift taxes; (4) Eligibility for a benefit, a pro gram, or assistance under a statute or regulation; and (5) The principal’s personal history of making or joining in making gifts. The agent should include some docu mentation, such as a note or explanation, showing the relevant factors the agent considered at the time the gift was made. If anyone challenged the gift, the agent could rely on the notes to support the agent’s decision to make the gift. If an agent is concerned about whether the FPOA grants him or her authority for a specific action, or wishes to have a gift approved, § 72-31-321, MCA, authorizes an agent to petition a court to construe an FPOA or review the agent’s conduct and grant appropriate relief. Obtaining court approval may also serve as a belt-and-sus penders approach to limiting the agent’s liability in the event the gift or transaction is later challenged by either the principal

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