FINAL THOUGHTS ON POWERS OF ATTORNEY

When representing a principal, the main disadvantage of a Power of Attorney is that it is subject to abuse: although there are now new rules requiring accounting,the use of monitors, execution rules, etc., it still does not have the same ongoing court supervision of the attorney-in-fact as there is in a guardianship. If the attorney-in-fact abuses his or her authority and acts improperly, a court may step in and take action. However, in many cases, the damage is already done, and it is difficult to undo it. Of course, you should take great care in selecting your attorney-in-fact. But I also see the great divisions it creates in families wherein one member is being made attorney-in-fact unknown to other family members. My suggestion is the following: after meeting with the principal, ascertaining their wishes and before executing a Power of Attorney, counsel should notify all family members that would receive notice under the rules regarding the appointment of a guardian. A meeting should be scheduled with all in attendance wherein the principal expresses their wishes and explains why they are executing the Power of Attorney, why a particular person was selected as attorney-in-fact, why certain powers were granted, etc. Let all family members discuss it among themselves and with the principal. Afterwards, then let the principal make their decision. Does this make the process costly? Yes, but, in the long run, it is worth it. I view the Power of Attorney as I view a prospectus for securities under federal securities laws and rules: notice and disclosure is the key!

THE SMGR OF THE POWER OF ATTORNEY

Under the new rules, and in response to the potential abuse inherent in the Power of Attorney, under the new rules, if the principal wishes to delegate to the agent the authority to make gifts, they must first initial this intent on the Power of Attorney form itself AND ALSO EXECUTE A SEPARATE STATUTORY MAJOR GIFTS RIDER (SMGR), which must be signed by the principal before a notary AND WITNESSED BY TWO WITNESSES, NEITHER OF WHOM IS A POSSIBLE RECIPIENT OF THE GIFTS. “Major gifts” are those in excess of $500/year and which do not continue the custom of the principal. NY G.O.L. 5-1514. Powers such as the authority to create, amend, revoke or terminate an intervivos trust, create joint accounts, modify “totten trust” beneficiaries and change beneficiaries on insurance or retirement accounts must now be included in the SMGR, as they are no longer encompassed within the powers accorded “insurance” or “retirement accounts”. See also NY G.O.L. 5-1501L. But does this truly prevent the abuse of a Power of Attorney?

THE THREE FORMS OF POWERS OF ATTORNEYS

There are three forms of Powers of Attorney, viz., "Nondurable," "Durable," and "Springing" Powers of Attorney. A "Nondurable" Power of Attorney takes effect immediately. It remains in effect until it's revoked by the principal, or until the principal becomes mentally incompetent or dies. It is often used for a specific transaction, like the closing on the sale of a residence, or the handling of the principal's financial affairs while the principal is traveling outside the country. A "Durable" Power of Attorney enables the agent to act for the principal even after the principal is not mentally competent or physically able to make decisions. The "Durable" Power of Attorney may be used immediately, and is effective until it is revoked by the principal, or until the principal's death. A "Springing" Power of Attorney becomes effective at a future time. That is, it "springs up" upon the happening of a specific event chosen by the principal, and spelled out in the Power of Attorney. Often that "springing" event is the illness or disability of the principal. It will frequently provide that the principal's physician will determine whether the principal is competent to handle his or her financial affairs. A "Springing" Power of Attorney remains in effect until the principal's death, or until revoked by a court. Now under the new law, there is a “springing event” to all Powers of Attorney as the date on which an agent's signature is acknowledged is the effective date of the Power of Attorney as to that agent; if two or more agents are designated to act together, the power of attorney takes effect when all the agents so designated have signed the power of attorney with their signatures acknowledged. NY G.O.L. § 5-1501B subd. 3 (a). Of course, if the Power of Attorney is a “Springing Power of Attorney (“to take effect upon the occurrence of a date or contingency”), the occurrence of the contingency is also required. NY G.O.L. § 5-1501B subd. 3 (b). Both "Durable" and "Springing" Powers of Attorney are frequently used to plan for a principal's future incapacity or disability and loss of competence resulting, for example, from Alzheimer's Disease or a catastrophic accident. And by appointing an agent under a "Durable" or "Springing" Power of Attorney, the principal is setting up a procedure for the management of his or her financial affairs in the event of incompetency or disability. Which is better for the principal?

POWER OF ATTORNEY AND GUARDIANSHIP

Under the new Power of Attorney Law, not only must the agent account to the principal, but, as set forth in NY G.O.L. 5-1501A, if a guardian is later appointed, the agent shall account to the guardian rather than to the principal. This I find interesting because most attorneys will recommend making a Power of Attorney in order to make guardianship proceedings unnecessary arguing that a Power of Attorney is much less expensive and much less stressful than the court-appointed guardian process. Article 81 of New York’s Mental Hygiene Law authorizes a court to appoint a guardian to manage the personal and/or financial affairs of a person who cannot manage for himself or herself because of incapacity and not all Article 81 guardians in New York have the same powers. Guardianship orders are specifically tailored so that the powers that are granted to the guardian are those that are specifically necessary to meet the needs of the person who is incapacitated. For example, a person may not be able to pay their bills or manage their money, but may have the ability to make healthcare decisions. In such a case, a court might appoint a guardian with powers that are limited to financial management. So this raises a question: what is best for the principal? To execute a broad Power of Attorney while they have the capacity or have a guardian appointed when necessary?

MORE ON POWERS OF ATTORNEYS

Before we discuss the new Power of Attorney rules which begin on September 1 of this year, let us discuss the general rules of what a Power of Attorney is. A Power of Attorney is an agreement between two parties: a principal and an attorney in fact. The attorney in fact need not be an attorney at law (a lawyer). A Power of Attorney gives the attorney in fact rights to act in the principal's place. They are, in effect, fiduciaries of their principals. Powers of Attorney may be general, limited, or special. They are usually written documents, and New York imposes special requirements on their form or substance. General Powers of Attorney allow agents to take any legal action their principals may take. For example, the agent could open or close bank accounts in the principal's name, invoke or waive the principal's contractual rights, or buy or sell stocks for the principal. In New York, even a general Power of Attorney is not unlimited due to statute or court precedent. A principal may grant a limited Power of Attorney by placing restrictions in the Power of Attorney. New York also allows special Powers of Attorney for certain situations. Most often, special Powers of Attorney are used to appoint people to make medical decisions on the principal's behalf when the principal is incapacitated - a health care proxy. New York also has the Standby Guardian Designation, discussed in an earlier blog. Normally, a Power of Attorney only remains effective as long as the principal is alive and competent to make decisions. Principals may, however, grant durable Powers of Attorney that persist after they are no longer able to make their own decisions.

THE NEW POWER OF ATTORNEY RULES

On September 1, 2009, a new statutory Power of Attorney will be in effect. NY G.O.L. 51501, Chap. 644 of Laws of 2008. This new statutory form changes the manner of execution and the content of the previous statutory form. It continues the dual use of a Power of Attorney: financial access to a principal’s accounts while he or she has capacity as well as an effective tool for future planning if the principal becomes incapacitated. By setting forth the fiduciary duty of the agent to the principal, the new statutory form is intended to eliminate abuses committed by agents under the previous statutory Powers of Attorney and includes provisions intended to safeguard individuals from those who overreach via Power of Attorney. Even if the extensive provisions in the form do not stop the unauthorized use of funds, the statute is clear that agents must keep records and document their transactions. This requirement may prove a deterrent to those who wish to serve only for their own self interest. I just attended a seminar on this and will discuss more - and realize that Power of Attorneys executed prior to September 1 will still be effective but the fiduciary duties will now apply to them as well as the special proceeding that may be initiated to clarify the validity of the document executed prior to September 1, 2009