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Eight things you should know to ensure your New York Power of Attorney works when you need it
Many clients come to our office wanting to create a will or a trust to take care of their financial affairs when they pass away. It is my job to remind them that an estate plan is not only for preparing for death, but it also has to protect them when they are still alive, but too sick to take care of their matters.
Anyone over the age of majority should have this important document prepared, but it is especially important for the elderly to have a Power of Attorney, as the possibility of losing their mental capacity becomes higher with advanced age. Without a POA, the process of assigning a guardian or conservator in the courts can take several months and cost a great deal in legal fees. Those burdens can be easily avoided with advance planning. When a spouse or adult child is appointed as guardian through a court, they are required to provide regular reports to a judge. A Power of Attorney can prevent these hassles. Keep in mind that a spouse does not automatically have Power of Attorney, except with jointly owned properties.
Power of Attorney and Advance Healthcare Directive (Healthcare Proxy in New York) are two very important documents that will help when you are incapacitated. A Power of Attorney appoints an agent to take care of your financial matters, while the Advance Healthcare Directive appoints an agent to make medical decisions for you when you can’t.
We will focus on Power of Attorney in this article. I have encountered many cases where a Power of Attorney drafted with a do-it-yourself tool or by a non-estate lawyer was inadequate, and we couldn’t use it to complete further planning after a client was already incapacitated.
1. Confirm what your state requires for POA execution
The legal document is valid only if it meets all the requirements of execution. Each state has different requirements to create a valid Power of Attorney. In New York, a Power of Attorney should be signed and dated by the principal with a sound mental capacity, and it is acknowledged in the same manner as a conveyance of real property, which means it has to be notarized (N.Y. General Obligations Law 5-1501B). New York also requires that the document contain the exact wording of “caution for principal” and “information for agent” from the statute. The New York court held that a Power of Attorney that is not signed, dated and acknowledged by an agent who is given authority is not valid. Using the state’s statutory Power of Attorney form is a good way to meet the basic requirements.
Some states don’t require notary, or may require either notary or witnesses. But having the principal and agent signatures notarized will make it less likely that the validity of the signature is questioned, especially by financial institutions.
New York will accept a Power of Attorney that is properly executed in another state. For example, if someone executes a valid New Jersey Power of Attorney, and then moves to New York, the POA will continue to be valid in New York. But it is a good idea to consult an estate attorney regarding whether out-of-state plans should be updated.
2. Consider naming more than one agent in your POA
Many people make the mistake of merely naming one agent in their Power of Attorney. This is not advisable, for if the only-named agent becomes unavailable, moves far away, or also becomes incapacitated or passes away, then the family will need to go to court to appoint a guardian to replace the previous agent. To avoid this situation, name a successor agent, who will step up when the primary agent becomes unavailable. Or name co-agents who can act independently or together to make decisions for your affairs.
3. Understand the difference between Durable and Springing Power of Attorney
In New York, as in many states, a Power of Attorney is presumed to be durable, meaning the power is given to the agent as soon as the agent signs the acknowledgement, and continues after the principal becomes mentally or physically incapacitated and unable to make his or her own decisions.
But a Springing Power of Attorney takes effect upon the occurrence of a date or a contingency specified in the document, which is usually incapacity of the principal.
While Springing Power of Attorney is appropriate when the principal wants to maintain complete control over her or his affairs while she or he is mentally capable, it requires the additional step of proving the incapacity before the agent can step up to make important financial decisions for the principal.
Durable Power of Attorney does not require this step. Because the agent under Power of Attorney will have a broad range of powers immediately, it is important to choose an agent you completely trust. A durable Power of Attorney is more often used in an estate plan to prepare for incapacity.
4. What to do if the agent named in your POA doesn’t act in your best interest
Some people worry that their agent has too much power, or might not be accountable when the principal loses their mental capacity.
The agent under Power of Attorney has a fiduciary duty to act in the best interest of the principal, and to keep records of all actions taken on behalf of the principal. If the agent does not provide a copy of valid Power of Attorney and records of their actions, then the spouse, child, or parent of a principal, the principal’s successor in interest or any third party who may be required to accept the Power of Attorney, may bring a special proceeding to determine the validity of the Power of Attorney, and could remove the agent if he or she acted against the best interest of the principal.
You can also appoint a monitor, who has the authority to request, receive and seek to compel the agent to provide a record of all receipts, disbursements and transactions entered into by the agent on behalf of the principal.
5. Your POA might not provide your agent with sufficient authority regarding digital assets
New York enacted a statute governing how an agent may access digital assets with its version of the Revised Uniform Fiduciary Access to Digital Assets Act in 2016, now adopted in 48 states (N.Y. Estates, Powers & Trusts Law 13-A). New York’s Statutory Power of Attorney has not yet been updated to reflect the new law.
The statute makes the distinction between a “catalogue of electronic communications” (the name of the sender, the email address of the sender, and the time and date of the communication) and the “content of electronic communications” (the subject line and text of the email messages). If the owner of the digital assets did not give “affirmative direction” to disclose the “content of electronic communications,” through an online tool or a planning document like a will or a Power of Attorney, then service providers are not obligated to provide “the content” to the owner’s family or agents.
If the Power of Attorney is not properly drafted to give an agent authority specifically to access the content, an agent might not be able to access critical information in emails from financial institutions or government agencies. Unauthorized access, even with a password, is a violation of the law.
6. The scope of New York POA’s is limited without a Gift Rider
Many states limit the power to make gifts or transfers of financial assets to protect the principal from abuse. In New York, an agent cannot gift or transfer assets of more than $500 per year, unless the Power of Attorney is accompanied by a duly executed gift rider, giving the agent unlimited power to make gifts.
Without a gift rider, your agent can still sign legal documents, pay bills and make transactions that don’t involve transferring assets to himself or others. But the agent cannot change a beneficiary designation of life insurance, annuities or retirement accounts. And they cannot access the funds from retirement accounts. The agent also cannot make any changes to an estate plan without a gift rider.
You might not plan to make any gifts to family, so you might not believe this gifting power is necessary. However, there is one important reason to provide your agent with a gift rider. When the principal is incapacitated, and requires in-home care or nursing home care, then transferring assets may be necessary in order to preserve lifetime savings while qualifying for Medicaid that will cover the cost of the care. But the agent cannot transfer assets without a gift rider.
7. Financial institutions might not honor the POA, if it does not use their form
A valid Power of Attorney with a gift rider should give an agent full authority to access and manage financial accounts. However, banks often question the validity of a Power of Attorney, because they may be liable for damages if they accept an invalid Power of Attorney, as several incidents of this were covered in this New York Times article in 2016.
In New York, the law requires a statutory Power of Attorney to be universally accepted, so it is unlawful for a financial institution to refuse acceptance of a valid Power of Attorney, without actual knowledge of abuse or fraud (N.Y. General Obligations Law 5-1504).
Many bankers are still cautious about the possibility of abuse, and often insist on using their own forms. While you may be able to convince a financial institution to accept your valid Power of Attorney, it is advisable to also execute an institution’s own Power of Attorney form, especially when dealing with larger financial institutions.
8. Your POA may need to be re-executed after several years
Financial institutions often refuse to accept a Power of Attorney if it was executed a long time ago, because it might not reflect the present-day intentions of the principal. The law states that the passing of time since the execution of the POA cannot be the only reason to refuse to honor a valid Power of Attorney (N.Y. General Obligations Law 5-1504). But an older POA is more likely to be rejected by financial institutions.
The best practice is to re-execute or update a Power of Attorney every five years.
However, if the principal sets up a revocable or irrevocable trust, giving power to a trustee when he or she is incapacitated, then the trust document is more readily accepted by banks, and does not need to be updated every five years.
A Power of Attorney is a very important document in anyone’s estate plan. It is advisable to prepare it after carefully reviewing your overall planning with a qualified estate-planning attorney.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
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