THE POWER OF A POWER OF ATTORNEY

One of the principal provisions of the new law regarding Powers of Attorney is that it is durable, i.e., not affected by the subsequent incapacity of the principal unless the document so states. NY G.O.L. 5-1501A. What I have seen many times is a Power of Attorney executed while the principal is incapacitated. For example, I was presented with a situation where a client discovered that a wealthy relative, who had previously made the client a primary beneficiary of the wealthy relative's estate, had executed a Power of Attorney to other relatives who were not named in the will. The wealthy relative was suffering from dementia and was attended to on a 24 hour basis. Of course, the other relatives who were not named in the will and who now had a Power of Attorney changed the will, established trusts for their benefits, etc. Another situation I was faced with was a client, who was living with a significant other who had a terminal disease, discovered that the significant other was basically no longer competent and wanted to get a Power of Attorney from the significant other to settle affairs. These situations illustrate a very important ethical question regarding the Power of Attorney - who does the attorney represent? The principal or the agent? And if the attorney, as I believe, should and must be the attorney for the principal and not the agent, should the attorney meet the proposed agent prior to the execution of the document and explain to him/her the obligations of a fiduciary under the new law, or is separate counsel needed? Remember: the Power of Attorney is a powerful too.

EXAMPLES OF ABUSE OF POWER OF ATTORNEY

The potential for fraud exists in every power of attorney arrangement, through self dealing, embezzlement, and unlawful gifting. In some situations, a power of attorney holder will significantly deplete an estate, leaving the heirs of the principal with little or no inheritance. Other ways in which a power of attorney can be abused include changing beneficiary designations on life insurance or annuities, and opening bank accounts with joint title or pay on death provisions in favor of the agent. The potential for power of attorney disputes is large and can lead to lawsuits. In many situations, the power of attorney abuse is part of a broader pattern of elder abuse. If the principal has passed away by the time the power of attorney abuse has been discovered, the principal's estate or the intended beneficiaries of the property may, in New York, be able to sue the agent for breach of fiduciary duty. For example in Matter of Ferrara, 3 NY3d 244 (2006), the Court of Appeals determined that additional powers added to a statutory form, in particular the power to make gifts to an agent, must be exercised in the best interest of the principal. In Ferrara, an attorney who represented the agent, not the principal, prepared a Power of Attorney for the agent’s uncle without having met the uncle. The authority to make unlimited gifts to the nephew agent was included as an additional power to the statutory powers. The document was executed before an attorney/notary who had not previously met the uncle and who testified that she had acted only as a notary and had not explained the provisions of the Power of Attorney to him. The nephew then made gifts of approximately $800,000 to himself, in conflict with his uncle’s previous Will. When the charities named in the original Will sued to recover funds from the nephew, the lower courts upheld the gifts, as there was no evidence that the uncle had not properly executed the Power of Attorney. The Court of Appeals, however, reversed, stating that all powers must be exercised in the best interest of the principal, and that there was no possible benefit to the principal from the nephew’s actions.