Power of Attorney – NY Changes its Laws – Lessons For All

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.