A good estate plan typically consists of several documents including a last will and testament, health care proxy, living will and power of attorney. Some individuals may need additional planning using various trusts and tax planning instruments. Of all these documents the power of attorney may be one of the most important.
In New York, powers of attorney are governed by New York General Obligations Law Section 5-1501. A properly drawn power of attorney gives an “agent” the legal authority to conduct financial and personal transactions for the person who creates the power of attorney, also know as the “principal”. With a “durable” power of attorney, this authority continues even if the principal loses their mental capacity at a later date and cannot make decisions for themselves. Without a power of attorney a family may have to institute a guardianship procedure to have a court appoint someone to handle that person’s affairs. This requies court involvment, a court appointed evaluator to make recommendations to the judge, a formal court hearing and no guarantee that the guardian appointed by the court will be the person that the individual would have chosen. Add into the equation the legal fees, which could exceed several thousand dollars, and the length of time to conclude a guardianship and you get the idea why a power of attorney is an invaluable tool.
The spotlight on the importance and use of the power of attorney has increased in the last ten years causing the New York legislature to make major revisions to the law in 2009. (Final revisions were made in 2010.) These legislative changes transformed a four page document into a more cumbersome document consisting of at least twelve pages. Many of these changes were to reduce some confusion and eliminate possible abuse by the agents.
In the statutory revisions, the title of the person that receives the authority to act for the principal changed from “attorney-in-fact” to “agent”. This helped reduce the confusion of what the person’s position entailed. The term attorney-in-fact was unknown to many people with some even thinking they had to select an attoney-at-law as their representative. The word agent is more familiar and designates someone who, as Webster’s Dictionary defines is: “a person who does business for another person or a person who acts on behalf of another.” This clearly lays out that individual’s responsibility.
With the intent to eliminate abuses by the newly titled “agents”, the legislature added the requirement that the agent now sign the power of attorney acknowledging their duties and legal requirements when acting as an agent. By signing the power of attorney, the agent states that they understand they are acting on behalf of the principal and that all their actions have to be clearly in the principal’s best interest and in keeping with their intentions. Additionally, the new power of attorney law requires that the principal sign a “statutory gift rider” to clearly define what “gifts” or transfers can be made by the agent. Often assets might need to be transferred out of an individual’s name to qualify them for various government benefits. By clearly defining these types of permitted transfers, the question of what may or may not be permitted is plainly answered on paper.
These changes to the power of attorney statute can help avoid some problems like those in a case that was handled by our office. The case involved a mother giving power of attorney, before the law changed, to one of her two children. Even after meeting twice with an elder law attorney, the mother rejected the attorney’s recommendation to transfer her house to her two daughters and, despite signing other estate planning documents, chose not revise her last will and testament which left her estate to both daughters in equal shares. The daughter holding the power of attorney then used the authority under that document to transfer the entire house to herself alone. This was discovered after the mother passed away.
After prolonged litigation, our office was successful in having that deed overturned and the house returned to the estate. Relying primarily on Matter of Ferrara, 7 NY3d 244; 852 NE2d 138; 819 NYS2d 215 (2009), which held that the authority to make “gifts” using a power of attorney must be for the principal’s clear financial and planning benefits, not as a general gifting power and certainly not to supplant their testamentary plan, we were able to obtain a favorable result without having to go to trial.
Some of the stated goals of the legislature were to make the agent clear as to what they can and cannot do as well as making the principal aware of the importance of being clear about your wishes and choosing the right person as your agent.
Finally, when executing a power of attorney, it is important to make sure it is comprehensive enough to handle some unexpected events. The new statute allows for modifications to expand some of the powers beyond the basic powers listed in the statutory short form. Based on years of experience, our office expands the authority in many of our powers of attorney to provide for needs we have seen arise from our clients when they require assistance or planning in crisis situations.
Just like periodically going to a doctor to review your medical condition, it’s always a good idea to see an estate planning or elder law attorney for a check up to see if your planning is current. Even if you have an old power of attorney in place, a review may disclose that you should update to the post-2010 more comprehensive power of attorney. It can be a very powerful tool and avoid unnecessary problems.
By: Robert M. D’Angelillo, Esq.
Lewis Johs Avallone Aviles, LLP
One CA Plaza, Suite 225
Islandia, N.Y. 11749