By: Martin M. Shenkman, CPA, MBA, JD
New York Power of Attorney Changes
Summary. A power of attorney is one of the most important legal and financial documents you will ever sign. A power can be vital to protecting your financial interests when you are disabled. A power can be your primary dispositive document by authorizing an agent to make unlimited gifts, modify beneficiary designations and more. It can also be a source of elder financial abuse by someone (e.g., child, caretaker, etc.) using it as a weapon to steal your assets. New York, after 8 years of study has revised its laws governing powers. Chapter 644, 1/27/09. 8 years demonstrates the seriousness, importance and risks of what too many people view as a simple, "standard" document. The new rules are effective 9/1/09. For all you folks that continue to ignore the many articles (HIPAA, prudent investor act, etc.) imploring you to update your plan and documents, and to meet all your advisers annually, here's another major change to ignore at your peril. For a background article on powers see Practical Planner July 2006 available in the newsletter archive on www.shenkmanlaw.com.
Expect More Cost, Time and Complexity. The modifications to NY's power of attorney law are laudable. There is no question that too many people were misled by the ease or simplicity of signing perceived standard powers. The internet has exacerbated this problem exponentially. Unfortunately, protection comes at a price. Standard forms and lawyer prepared comprehensive forms will be longer, more complex, require more decisions, take more time to sign, create more potential for execution errors (e.g., not checking all the required boxes or failing to sign a critical rider).
Sign New Forms. New forms are being created. Anyone that has signed old NY power standard forms should consider signing new ones that comply with the new requirements. Old powers will remain valid but will be subject to some of the new rules, including those governing HIPAA, acceptance by third parties and the standard of care required of the agent. Even if old powers work, you should have the protections afforded by the new law. Further, using current documents will likely grease the wheels for having the documents accepted.
Your Agent Must Sign. The agent, to use the power must sign the document. It's not valid without your signature as principal and the agents. Signatures must be notarized. Ch. 644, §2, 5-1501B(1).
Evaluate Gift Powers. The authority of an agent to make gifts can be vital if you face an estate tax. With the federal estate tax exclusion now $3.5M, for the vast majority of Americans this is not an issue and the weighing of the risks of a broad gift provision, versus loss of estate tax planning benefits has changed. For most Americans, unless there is an heir in need of help, the risk of gift powers now might outweigh the possible benefits if estate tax is not an issue. However, in states, like NY, that assert an estate tax on all assets over $1M, the gift power may be the key to reducing or eliminating that tax. If a power doesn't expressly provide the authority to make gifts, the agent cannot do so. NY has made this much tougher and more complex. A "major gifts rider" must be attached to the statutory power of attorney, notarized and witnessed by two independent (i.e., cannot receive gifts) people. This can also be accomplished in a non-statutory power (i.e., lawyer created documents) meeting the same requirements. Ch. 644, §2, 5-1501B(2), § 19, 5-1514. Agents must act in accordance with the principal's instructions, or if none, in the principal's best interests. These changes raise a raft of issues that are complicated and problematic. For example, you might authorize your agent to made decisions pertaining to your IRA. You'll have to sign a Gift Rider to permit a change in beneficiaries. How can you differentiate between non-gift and gift-like powers and decisions?
Authorize Medical Records. HIPAA - the Health Insurance Portability and Accountability Act (see Practical Planner July 2007) restricts access to your protected health information ("PHI"). Your financial agent needs access to some of that info to pay bills. The new law grants that. Good change, but will your records include more personal details than you want a financial agent to see? §5-1502K, Ch. 644, §12. Financial agents still are precluded from being empowered to make health care decisions under a financial power.
Agent Acknowledges Responsibilities. The new law clarifies that the agent is a fiduciary (position of trust). Ch. 644, §19, 5-1505. The agent is required to disclose to third parties that he is acting as your agent. The agent must sign the power for it to be valid, and in doing so acknowledges the responsibility and liability that he is accepting by signing on as agent.
Appoint A Monitor. You can appoint someone to monitor your agent's actions. Ch. 644, §19, 5-1509. The monitor can request a copy of the power of attorney and documents that record transactions of the agent.
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