Financial exploitation of vulnerable older adults is the fastest growing form of elder abuse, according to non-profit groups, law enforcement, adult protective services, aging service providers, the legal community, bankers and others serving the senior population. In response, New York State has amended Article 15 of the New York general Obligations Law (Chapter 644 of the Laws of 2008) governing powers of attorney and the manner in which these powers must be documented. A subsequent amendment postponed the effective date of the new legislation until September 1, 2009. Durable powers of attorney properly executed prior to September 1, 2009 are grandfathered by the new legislation and will remain in effect.
The power of attorney allows a person (“the principal”) to grant another person (“the agent”) the authority to act on the principal’s behalf in regards to business and personal affairs. The agent has the authority to “step into the shoes” of the principal and exercise a very broad range of powers, including: the authority to sell, transfer or dispose of property, change beneficiary designations on life insurance or qualified accounts, establish trusts, open or close accounts, retitle accounts, etc. A durable power of attorney remains in effect even if the principal subsequently becomes incompetent. The distinct ability of the durable power of attorney to authorize a broad range of powers has traditionally made it a very effective Estate Planning, Asset Protection Planning and Financial Management tool recommended by estate and elder law attorneys. The Power of Attorney is a necessary estate planning document for clients young and old. Clients with a properly drafted durable power of attorney can avoid a costly guardianship proceeding if the worst happens and a family member becomes incompetent.
Under the old law, despite the extraordinary power and authority that a power of attorney could allow a principal to convey, the document’s execution was relatively simple (requiring only the acknowledgment of the principal’s signature before a notary public).
The goal of the new law is to reduce the incidence of financial exploitation by educating the principal and agent, along with holding the agent accountable if abuse occurs. The new law seeks to provide clarity and direction to both the principal and agent, and to ensure that a person executing a power of attorney recognizes the sweeping powers they are delegating to the agent. The law creates a new statutory short form that is not valid until it is signed by both the principal and the agent. The form required by the statute itself includes an explanation to the principal regarding the extent of the agent’s authority, and the nature of the fiduciary duty owed to the principal by the agent. The new form also includes a clear explanation of how a principal can revoke the power of attorney. Further, the new form allows the principal to designate a person called a “monitor” to oversee the activities of the agent. As an added safeguard, the law specifies that the monitor has authority to compel account statements and records of all transactions from the agent.
The new law contains several changes affecting the agent as well. The most notable change regarding the agent is the clear notice explaining an agent’s role, fiduciary obligations and legal limitations on the agent’s authority, along with the requirement that the agent sign the power of attorney, acknowledging those fiduciary obligations. When transacting business using the power of attorney, the agent is attesting that he or she is acting under a valid power of attorney, within the scope of authority conveyed by the instrument. Finally, if the principal designates, the new law specifies that the agent may be entitled to “reasonable compensation” in return for acting as an attorney-in-fact.
Another significant change in the new legislation is the treatment of gifting. The new law requires that a grant of authority to make major gifts and other asset transfers (such as change of beneficiary designations) be set out in a “major gifts rider,” which must be executed at the same time as the statutory power of attorney. The major gifts rider must be signed by the principal and notarized and signed by two witnesses (who are not named in the documents as recipients of gifts or other transfers) in the same manner as a will. Alternatively, a person wishing to grant gifting authority to an agent may execute a nonstatutory power of attorney signed by the principal and two disinterested witnesses and a notary. Again, the purpose of the major gifts rider is to alert and educate the principal and allow anyone granting gifting authority to an agent to make an informed decision whether the agent may make gifts to third parties as well as to the agent himself or herself. Finally, the new law seeks to ensure that third parties accept a properly executed durable power of attorney. In the recent past, this has not been the case. Many institutions instead required that a principal execute a document prepared by that particular institution. Obviously, this practice negated the purpose of a durable power of attorney (one that remained in effect if the principal became incompetent) and created substantial difficulty in cases where the principal became incompetent and could not legally execute another document.
Also, the amendment expands the definition of financial institutions beyond banks to include security brokers, securities dealers, securities firms and insurance companies. The law sets out that these institutions must accept a valid power of attorney, cannot require the institution’s special form, and can only refuse to honor a power of attorney for “reasonable cause” (which is now specifically defined in the statute). When a third party unreasonably refuses to accept a power of attorney, the statute authorizes an agent to get a Court Order compelling that institution to accept the power of attorney. All these changes are designed to insure that institutions comply with the law. Hopefully, this will result in more uniform policies and practices with regard to the use and acceptance of powers of attorney.
In light of the sweeping changes to the New York Power of Attorney Statute going into effect September 2009, it would be prudent for clients to contact their attorney so that their power of attorney can be reviewed and updated if necessary. As always, we will keep our clients informed regarding any issues that may arise as the new power of attorney law is implemented. Lisa Arrington at (585) 324-5722; Dave Anderson at (585) 324-5715; Terry Emmens at (585) 324-5713 and Karen Schaefer at (585) 324-5718 are available to help you.