Below you will find the 3rd in a multi-part series on the Power of Attorney in North Carolina.
Across many jurisdictions, the power of the agent to make gifts has been highly debated. In North Carolina, there has never been a statute prohibiting the power to make gifts, but until 1995 there was also nothing that authorized this power. With that said, prior to 1995 it was safe to assume that if an attorney-in-fact made a gift on behalf of the principle, it wouldn’t be credible. However, Chapter 32A of the North Carolina General Statutes was amended effective October 1, 1995 to include a number of changes that do authorize gift giving under a durable power of attorney by the attorney-in-fact.
N.C. Gen. Stat. § 32A-1(14) and (15) were added to the short form (where the principal initials the powers they wish to give the attorney in fact). N.C. Gen. Stat. § 32A-1(14) reads, “Gifts to charities, and to individuals other than the attorney-in-fact” while § 15 reads “Gifts to the named attorney-in-fact.” These powers are described in G.S. § 32A-2(14) and (15). There, paragraph (14) reads:
Gifts to Charities, and to Individuals Other Than the Attorney-In-Fact. –
- Except as provided in G.S. 32A-2(14)b., to make gifts of any of the principal’s property to any individual other than the attorney-in-fact or to any organization described in sections 170(c) and 2522(a) of the Internal Revenue Code or corresponding future provisions of federal tax law, or both, in accordance with the principal’s personal history of making or joining in the making of lifetime gifts. As used in this subdivision “Internal Revenue Code” means the “Code” as defined in G.S. 105-228.90.
- Except as provided in G.S. 32A-2(14)c., or unless gifts are expressly authorized by the power of attorney under G.S. 32A-2(15), a power described in G.S. 32A-2(14)a. may not be exercised by the attorney-in-fact in favor of the attorney-in-fact or the estate, creditors, or creditors of the estate of the attorney-in-fact.
- If the power described in G.S. 32A-2(14)a. is conferred upon two or more attorneys-in-fact, it may be exercised by the attorney-in-fact or attorneys-in-fact who are not disqualified by G.S. 32A-2(14)b. from exercising the power of appointment as if they were the only attorney-in-fact or attorneys-in-fact.
- An attorney-in-fact expressly authorized by this section to make gifts of the principal’s property may elect to request the clerk of the superior court to issue an order to make a gift of the property of the principal.
N.C. Gen. Stat. § 32A-2(14).
G.S. § 32A-2(15) reads “Gifts to the Named Attorney-In-Fact. – To make gifts to the attorney-in-fact named in the power of attorney or the estate, creditors, or creditors of the estate of the attorney-in-fact, in accordance with the principal’s personal history of making or joining in the making of lifetime gifts.”
Another change to the power of an attorney-in-fact to give gifts is reflected in N.C. Gen. Stat. § 32A-14.1 which reads:
Gifts under power of attorney.
(a) Except as provided in subsection (b) of this section, if any power of attorney authorizes an attorney-in-fact to do, execute, or perform any act that the principal might or could do or evidences the principal’s intent to give the attorney-in-fact full power to handle the principal’s affairs or deal with the principal’s property, the attorney-in-fact shall have the power and authority to make gifts in any amount of any of the principal’s property to any individual or to any organization described in sections 170(c) and 2522(a) of the Internal Revenue Code or corresponding future provisions of federal tax law, or both, in accordance with the principal’s personal history of making or joining in the making of lifetime gifts. As used in this subsection, “Internal Revenue Code” means the “Code” as defined in G.S. 105-228.90.
(b) Except as provided in subsection (c) of this section, or unless gifts are expressly authorized by the power of attorney, a power described in subsection (a) of this section may not be exercised by the attorney-in-fact in favor of the attorney-in-fact or the estate, creditors, or the creditors of the estate of the attorney-in-fact.
(c) If the power of attorney described in subsection (a) of this section is conferred upon two or more attorneys-in-fact, it may be exercised by the attorney-in-fact or attorneys-in-fact who are not disqualified by subsection (b) of this section from exercising the power of appointment as if they were the only attorney-in-fact or attorneys-in-fact. If the power of attorney described in subsection (a) of this section is conferred upon one attorney-in-fact, the power of attorney may be exercised by the attorney-in-fact in favor of the attorney-in-fact or the estate, creditors, or the creditors of the estate of the attorney-in-fact pursuant to an order issued by the clerk in accordance with the procedures and provisions of Article 2B of this Chapter.
(d) Subsection (a) of this section shall not in any way impair the right, power, or ability of any principal, by express terms in the power of attorney, to authorize or limit the authority of any attorney-in-fact to make gifts of the principal’s property.
(e) An attorney-in-fact expressly authorized by this section to make gifts of the principal’s property may elect to request that the clerk of the superior court issue an order approving a gift or gifts of the property of the principal.
N.C. Gen. Stat. § 32A-14.1(a)-(e)
Unlike in the statute above, the legislature also created a statute for instances when the power of attorney does not contain the power to make gifts. The relevant statute reads:
Gifts authorized by court order
An attorney-in-fact, acting under a power of attorney that does not contain the grant of power set out in G.S. 32A-14.1 and does not expressly authorize gifts of the principal’s property, may initiate a special proceeding before the clerk of superior court in accordance with the procedures of Article 33 of Chapter 1 of the General Statutes for authority to make gifts of the principal’s property to the extent not inconsistent with the express terms of the power of attorney. The principal and any guardian ad litem appointed for the principal are the defendants in a proceeding pursuant to this Article. The clerk may issue an order setting forth the amounts, frequency, recipients, and proportions of any gifts of the principal’s property after considering all relevant factors, including, but not limited to: (i) the size of the principal’s estate; (ii) the principal’s foreseeable obligations; (iii) the principal’s foreseeable maintenance needs; (iv) the principal’s personal history of making or joining in the making of lifetime gifts; (v) the principal’s estate plan; and (vi) the tax effects of the gifts. If there is no appeal from the decision and order of the clerk within the time prescribed by law, the clerk’s order shall be submitted to the judge of the superior court and approved by the court before the order becomes effective. (1995, c. 331, s. 5.)
N.C. Gen. Stat. 32A-14.10
There are also a number of cases that create several principles dealing with gifts to the attorney-in-fact (the two most basic ones are mentioned here). First, in Estate of Graham v. Morrison the North Carolina Court of Appeals held “that in situations where an attorney-in-fact conveys the principal’s property to herself based upon a consideration of alleged services rendered to the principal, the valuable consideration must reflect a fair and reasonable price when compared to the fair market value of the property. Estate of Graham v. Morrison, 168 N.C. App. 63, 69, 607 S.E.2d 295, 300 (2005) (citing Morehead v. Harris, 262 N.C. 330, 338, 137 S.E.2d 174, 182 (1964) (stating “[v]aluable consideration or ‘value’ is a fair consideration, not necessarily up to full value, but a price paid which would not cause surprise”)). Second, in Hutchins v. Dowell the court stated that “an agency relationship, at least in the case of an agent with a power to manage all the principal’s property, it is sufficient to raise a presumption of fraud when the principal transfers property to the agent. Self-dealing by the agent is prohibited.” Hutchins v. Dowell, 138 N.C. App. 673, 677, 531 S.E.2d 900, 902-03 (2000).
On a similar note, N.C. Gen. Stat. § 32A-14.2 places further restrictions on the attorney-in-fact. Paragraph (a) states, “If any power of attorney authorizes an attorney-in-fact to do, execute, or perform any act that the principal might or could do or evidences the principal’s intent to give the attorney-in-fact full power to handle the principal’s affairs or deal with the principal’s property, but does not expressly authorize the attorney-in-fact to renounce an interest in or power over NC General Statutes – Chapter 32A 10 property, the attorney-in-fact shall not have the power or authority to renounce on behalf of the principal pursuant to Chapter 31B of the General Statutes.” Paragraph (b) reads, “ Notwithstanding an express grant of general authority to renounce, an attorney-in-fact that is not an ancestor, spouse, or descendant of the principal may not renounce under a power of attorney to create in the attorney-in-fact or the estate, creditors, or the creditors of the estate of the attorney-in-fact, or in an individual to whom the attorney-in-fact owes a legal obligation of support, an interest in or power over the principal’s property by reason of a renunciation unless the power of attorney expressly authorizes a renunciation that benefits the attorney-in-fact or the estate, creditors, or the creditors of the estate of the attorney-in-fact, or an individual to whom the attorney-in-fact owes a legal obligation of support.”
The last component of powers of attorney worth discussing is the enforcement of power of attorney. N.C. Gen. Stat. § 32A Article 5, which became effective October 1, 2005 provides attorneys-in-fact a way to force third parties to deal with them and to give third parties a way of reducing their exposure when dealing with the attorney-in-fact. N.C. Gen. Stat. § 32A-40 reads:
Reliance on power of attorney.
(a) Unless (i) a person has actual knowledge that a writing is not a valid power of attorney, or (ii) the action taken or to be taken by a person named as attorney-in-fact in a writing that purports to confer a power of attorney is beyond the apparent power or authority of that named attorney-in-fact as granted in that writing, a person who in good faith relies on a writing that on its face is duly signed, acknowledged, and otherwise appears regular, and that purports to confer a power of attorney, durable or otherwise, shall be protected to the full extent of the powers and authority that reasonably appear to be granted to the attorney-in-fact designated in that writing, and no person so dealing in good faith with that named attorney-in-fact shall be held responsible for any breach of fiduciary duty by that attorney-in-fact, including any breach of loyalty, any act of self-dealing, or any misapplication of money or other property paid or transferred as directed by that attorney-in-fact. This subsection applies without regard to whether or not the person dealing with the attorney-in-fact demands or receives an affidavit under subsection (b) of this section. A person who conducts activities through employees or other agents has actual knowledge of a fact involving a power of attorney only from the time the information was received by an employee or agent having the authority to approve the power of attorney presented.
(b) A person may, prior to acceptance of the authority of the attorney-in-fact or at any other time, request an affidavit executed by the attorney-in-fact to the effect that the attorney-in-fact did not have, at the time of the presentation to the person of the writing purporting to confer a power of attorney, actual knowledge of either (i) the revocation of the power of attorney, or (ii) facts that would cause the attorney-in-fact to question the authenticity or validity of the power of attorney. An affidavit meeting the requirements of this subsection shall be sufficient proof to the requesting person, as of the date of the affidavit, of (i) the NC General Statutes – Chapter 32A 27 nonrevocation of the power of attorney, and (ii) the authenticity and validity of the power of attorney. If the exercise of the power of attorney requires execution and delivery of an instrument that is recordable, the affidavit shall be prepared so as to be recordable. An affidavit prepared under this subsection may also be used as an affidavit under G.S. 32A-13(c). An affidavit in the form described in subsection (d) of this section shall be deemed to meet the requirements of this subsection but shall not be the sole means of meeting those requirements.
N.C. Gen. Stat. § 32A-40(a)-(b)
There is also a penalty for unreasonable refusal to recognize power in order to help facilitate the enforcement of a powers of attorney. It’s codified in N.C. Gen. Stat. § 32A-41, which says:
(a) A person dealing with an attorney-in-fact who unreasonably refuses to accept a power of attorney shall be subject to all of the following:
(1) Liability for reasonable attorneys’ fees and costs incurred in any action or proceeding necessary to confirm the validity of a power of attorney or to implement a power of attorney.
(2) An order of the court requiring acceptance of the valid power of attorney.
(3) Any other remedy available under applicable law.
(b) Acceptance of a power of attorney shall mean (i) acknowledging the validity and authenticity of the document, and (ii) allowing the attorney-in-fact to conduct business in accordance with the powers that reasonably appear to be granted in the document.
N.C. Gen. Stat. §32A-41
Finally, N.C. Gen. Stat. 32A-42 provides further security for third parties and may limit the ability of the agent to do certain things on the principal’s behalf. The statute reads:
(a) A person is not required to honor the attorney-in-fact’s authority or to conduct business with the attorney-in-fact if the person is not otherwise required to conduct business with the principal in the same circumstances.
(b) Without limiting the generality of subsection (a) of this section, nothing in this Article requires a person to do any of the following:
(1) Engage in any transaction with an attorney-in-fact if the attorney-in-fact has previously breached any agreement with the person, whether in an individual or fiduciary capacity.
(2) Open an account for a principal at the request of an attorney-in-fact if the principal is not currently a customer of the person.
(3) Make a loan to the principal at the request of the attorney-in-fact.
(c) A person who is presented with a power of attorney shall not be deemed to have unreasonably refused to accept the power of attorney solely on the basis of failure to accept the power of attorney within seven business days.
(d) A person who has reasonable cause to question the authenticity or validity of a power of attorney may refuse to accept the authority granted by that document.
(e) A person who promptly requests, and does not within a reasonable time receive, an affidavit as described in G.S. 32A-40(b), is not deemed under G.S. 32A-41 to have unreasonably refused to accept a power of attorney.
(f) The principal, the attorney-in-fact, or a person presented with a power of attorney may initiate a special proceeding in accordance with the procedures of Article 33 of Chapter 1 of the General Statutes to request a determination of the validity of the power of attorney. If the decision in that special proceeding is that reasonable cause to refuse to accept the power of attorney existed, and that the attorney-in-fact willfully misrepresented the authenticity or validity of the power of attorney, the attorney-in-fact, and not the principal, is liable for reasonable attorneys’ fees and costs incurred in that action.
(g) Nothing in this Article requires a person who accepts a power of attorney to permit an attorney-in-fact to conduct business not authorized by the terms of the power of attorney, or otherwise not permitted by applicable statute or regulation.
(h) Nothing in this Article amends or modifies the rights of banks and other depository institutions to terminate any deposit account in accordance with applicable law.
N.C. Gen. Stat. § 32A-4