Powers of Attorney: What You Should Know
POWERS OF ATTORNEY: What You Should Know
Introduction – In New York, a person (known as the "principal") may make a Power of Attorney (a "POA") to authorize another person (known as an "agent) to act on his behalf in financial matters. The POA is widely used for financial and estate planning purposes and for avoiding the expense of guardianship in the event of the principal’s incapacity. POA’s grant to the agent broad authority to spend the principal’s money and sell or dispose of the principal’s property with or without the principal’s prior knowledge! This grant of authority has often been made by principals who did not fully understand the scope of the powers granted, and as a result it has led to much abuse.
On January 27, 2009 Governor Paterson signed legislation designed to curb this abuse. The new law will be effective for POA’s signed after September 1, 2009 (the "2009 Statute").
POA's validly executed prior to the effective date of the 2009 Statute will remain valid and third parties are required to accept and honor them even after the effective date of the 2009 Statute.
Legal Requirements. – The 2009 Statute provides language for the "New York Statutory Short Form" It provides one form of POA which serves the purpose of management of the principal's financial affairs. If the principal wishes to also provide for disposition of his/her assets for estate planning or other purposes, then the principal must so indicate in the body of the POA form and execute a separate Statutory Major Gifts Rider ("SMGR") (discussed below) .
: The 2009 Statute does not bar the use of any other form of POA desired by the principal, but if a non-statutory form is used third parties are not required to accept the non-statutory form.
A Statutory form of POA is durable, that is it survives the principal’s incapacity, unless the form of the POA expressly provides that it is terminated by the incapacity of the principal. The POA is effective as of the date the agent signs the POA and his signature is duly acknowledged. If there are more than one agent named in the POA, all the agents must sign the POA and have their signatures acknowledged to be effective.
The principal my add to or modify a POA by providing text to the section in the Statutory form of entitled "modifications" The intent of the 2009 Statute is to put in one place all the modifications to the Statutory form of POA so that they will become readily apparent. Modifications that might be made to the Statutory form of POA include: making the POA non-durable, making the POA a "springing" POA, or providing specific fee instructions for compensating the agent. It is not permissible to grant the agent authority to make major gifts (e.g., those in excess of $500) in the "modifications" section of the Statutory form of POA. The authority to make major gifts is given only by the due execution of a SMGR by the principal.
To be valid, the statutory short form POA must:
- be typed or printed in letters which are no less than 12-point in size;
- be signed and dated by the principal whose signature must be acknowledged in the manner prescribed for the acknowledgment of a deed that is to be recorded;
- be signed and dated by the agent with his/her signature duly acknowledged in the manner prescribed for the acknowledgment of a deed to be recorded;
A POA is not invalid solely because there has been a lapse of time between the date of signature of the principal and the date of the signature of the agent
- contain the exact wording of the "CAUTION TO THE PRINCIPAL" paragraphs as it appears in the specimen document of the Statutory form of POA; and
- contain the exact wording of the "IMPORTANT INFORMATION FOR THE AGENT" paragraphs as it appears in the specimen document of the Statutory form of POA.
The execution of a new POA revokes any and all prior POA's unless the principal provides otherwise. Otherwise, the principal may revoke a POA : (i) by providing for revocation in the POA form itself; or (ii) by delivery of a written, signed and dated revocation to the agent and to any third party the principal has reason to believe has received, retained or acted upon the POA.
Major Gifts. - Without specifically providing for major gifts in the POA and the due execution of a SMGR, the agent is limited to only continuing the pattern of gift giving established by the principal prior to the signing of the POA. If the principal had no such pattern of gift giving, the agent cannot make gifts. Even if there was a pattern of gift giving, the agent is limited to making gifts of less than $500 per donee in any calendar year.
The 2009 Statute provides a form for use as a SMGR. In order to authorize an agent to make major gifts and other transfers of the principal's property, the principal must initial a statement to that effect in the Statutory form of POA and execute a SMGR at the same time as he/she executes the POA. Initialing the statement in the POA by itself does not authorize the agent to make major gifts and other transfers.
The SMGR provides general authority to the agent to make gifts to the principal's children and more remote descendants, and parents, not to exceed, for each donee, the annual federal gift tax exclusion amount (currently $13,000). This authority must be exercised pursuant to the instructions of the principal, or otherwise for purposes which the agent reasonably deems to be in the principal's best interest. Under this general grant of gift giving authority, the agent can satisfy pledges to charitable and other organizations.
In the SMGR, the principal may grant specific authority to the agent to:
- make gifts up to a specified amount or an unlimited amount;
- make gifts to any person or persons;
- open, modify or terminate a deposit account in the name of the principal and any other joint tenant;
- open, modify or terminate a Totten Trust bank account and designate or change the beneficiaries of the account;
- open, modify or terminate transfer on death accounts and designate or change beneficiaries on the account;
- change the beneficiaries of any life insurance or annuity contracts;
- procure new, different or additional life insurance or annuity contracts for the benefit of the principal and designate the beneficiaries of those contracts;
- designate or change the beneficiaries of a retirement benefit or plan;
- create, amend, revoke or terminate an inter vivos trust; or
- create, change or terminate other property interests or rights of survivorship and designate or change the beneficiaries therein.
By negative implication, the agent can not engage in any of these enumerated transactions unless he/she is expressly granted the authority in a SMGR. In order for an agent to have authority to make gifts to him/herself, the principal must expressly grant that authority in the SMGR. Said another way, neither the general authority to make gifts up to the annual gift tax exclusion nor the specific grant of authority to make gifts to "any person" will allow the agent to make gifts to him/herself. Only by authority granted expressly in the POA can an agent make gifts to him/herself.
The authority to make gifts or affect an interest in the principal's property must be exercised by the agent according to the instructions provided by the principal or otherwise for purposes which the agent reasonably deems to be in the best interest of the principal, specifically including financial, estate, or tax planning, including minimization of income, estate and inheritance taxes.
To be a valid Statutory form of SMGR, it must:
- be typed or printed using letters which not less than 12-point in size;
- be signed by the principal whose signature must be acknowledged in the same manner a deed is acknowledged for purposes of recording, and be witnessed by two witnesses who are not named in the POA as permissible recipients of gifts under the SMGR;
- be accompanied by a statutory form of POA in which the paragraph referencing the SMGR is initialed; and
- be executed simultaneously with the statutory form of POA.
HIPAA Privacy Rules. -- the 2009 Statute makes explicit the fact that an agent is authorized to secure medical records, reports and statements in order to verify the accuracy of billing statements related to the principal's medical care. The grant of authority to access medical records does not; however, expand the agent's authority to make decisions affecting the principal's medical care. Authority to make those decisions is limited to the appointment of a health care agent under a Health Care Proxy.
Third Parties. – The 2009 Statute expands the universe of "financial institutions" that must accept a statutory form of POA to include securities brokers, securities dealers, securities firms, insurance companies as well as banks, savings banks, savings and loan associations, mutual savings banks, credit unions, public pension funds, and retirement systems. The 2009 Statute makes it clear that it is unreasonable for a financial institution to refuse to honor a POA because it is not on the financial institution's own form or there is a lag in time between when the principal signed and when the agent signed.
The Agent’s Duty. – In response to reported abuses of POA’s in the past, the 2009 Statute imposes a standard of care upon the agent and requires the agent to sign the POA to acknowledge his/her obligations to the principal. By accepting appointment as an agent, he/she is acknowledging that he/she has a fiduciary duty to the principal and that he/she must observe a standard of care that would be observed by a prudent person dealing with property of another person. The agent may be subject to liability for conduct or omissions which violate his/her fiduciary duty. The new standard of fiduciary duty imposed upon the agent:
- requires the agent to act only according to the instructions provided by the principal, or where there are no specific instructions, in the principal’s best interest;
- requires the agent to keep the principal’s property separate and distinct from any other property owned or controlled by the agent;
- prohibits the agent from transferring the principal’s property to him/herself without specific authorization from the principal; and
- requires that the agent keep a record of all receipts, disbursements and transactions entered into by the agent on behalf of the principal and to make those records available at the request of an authorized party.
Co-agents and Successor Agents. – Unless the principal specifically provides that co-agents can act separately, they must act together. The principal can name successor agents to act in the event the predecessor agent's authority terminates or in the event the predecessor agent is unable or unwilling to act.
Monitor. – A principal may appoint a monitor in the POA who has authority to request, receive and compel the agent to provide records of all receipts, disbursements and transactions entered into by the agent on behalf of the principal. The monitor can also seek records held by third-parties, such as banks or other financial institutions.
Effect of Divorce. – When a principal names a spouse as agent and they are subsequently divorced, the 2009 Statute provides that the spouse’s authority to act as agent is terminated by operation of law. Similarly when a principal names a spouse as a permissible recipient of a major gift under a Major Gifts Rider and they are subsequently divorced, the power of the agent to gift to the former spouse is revoked by operation of law.