Dear Clients and Friends:
From time to time a new law takes effect that should be translated into English and distributed to my clients and friends. That is exactly what I’m doing here so read on for a clear understanding of the new Power of Attorney law and how it might affect you.
A BETTER POWER OF ATTORNEY LAW
By Lawrence Eric Davidow, Esq.
I wish I had a dollar for every time I heard that someone went to a financial institution with a valid durable power of attorney to transact business for someone else and was turned away. “Sorry,” the bank would say, “we don’t like that form, please use our form of power of attorney.” Likewise, we may have heard that “sorry, that form is more than a year old so we will not accept it.” We might have also heard that “we will have our attorneys look it over,” but then not hear from them for months, if ever. Different banks or even branches of the same bank had different policies. This was all very frustrating…and wrong.
What good is a durable power of attorney if a third party, like a financial institution, won’t honor it? Surely we can understand that a third party might be worried that they may face some liability if an agent under a power of attorney steals the money under their watch, but should that concern stop the vast majority of agents trying to do the right thing in a timely manner? The answer is obviously NO!, and a 2021 New York law was designed to change this whole dynamic.
A new durable power of attorney law took effect on June 13, 2021 and was aimed, among other things (which I will mention some below) to strengthen its practical use. For context, a durable power of attorney is a document that appoints an agent (or agents) to act for you, even if (and perhaps if and when) you become incapacitated. The old and new statute provides a safe harbor form, called the “short form” to promote ease of recognition and use; however, the old form turned out to not be so easy to use.
The new law provided a new “short form” and needed adjustments. So how does this new law really help? The new law says that if you use the “short form” power of attorney, the third party had better honor it and quickly, and if not they better have a pretty good reason. Well, it doesn’t really say it that way, but you get the gist. What the new law really does is balance the need to force the third party to accept the power of attorney while taking them off the hook for abuses of its use.
On the one hand, the new law says that there will be sanctions if a financial institution unreasonably refuses to honor the power of attorney, with some safeguards. In fact, the new law says that the financial institution has 10 business days to make a decision to honor or reject the form. If they reject it, they must do so in writing, spelling out their reasons. And those reasons better be good, or “reasonable.” If not, then a special proceeding can be brought against them to compel them to accept it and the court can award damages, including reasonable attorney fees and costs. Ouch! So now you can tell the financial institutions what they can do with their own forms.
To remove the sting for the financial institution the new law provides them some shelter by specifically providing that if they accept a power of attorney that appears to be validly executed, they will not be held liable for any bad deeds perpetrated by the agent. There will be a presumption of validity that should satisfy the worriers.
The new law also made some other helpful changes and I will briefly highlight a few of them here:
First, the old law said that in order for a power of attorney to be a “short form” power of attorney it had to be an exact duplicate of what the statute provided. Technically, if a comma was out of place it would not qualify. What a ridiculous law! Shouldn’t close enough be enough? And now with the new law, close enough is enough, or in the words of the statute it must “substantially conform.” I like close enough better.
Second, the old law provided that if you wanted your agent to be able to make any gift of your assets, to anyone, including themselves, then you had to execute a rider to your document. All this did was make the understanding and execution of the document more difficult. The new law incorporates any gifting provisions into the body of the one document. Brilliant! Ugh. By the way, this old and new gifting provision is critical when we are trying to save money from taxes and long-term care expenses. It is not in the “short form” as originally written, but the room is there to add it in as a modification.
Third, the old law did not make it easy for people who were competent but physically challenged to sign their document. Basically, it thumbed its nose at anyone who could not physically sign their name. We are better than that! The new law allows this person to direct someone (other than an agent or successor agent), while in the presence of the principal, to sign the power of attorney on his or her behalf. We are growing as a people!
Fourth, while it was always a good idea, the new law makes clear that an agent must maintain records and receipts of all payments and transactions conducted on behalf of the principal.
The prior power of attorney law meant well. A lot of well-meaning lawyers and legislators sat in a room with the goal of creating a horse but created a camel instead. This new law smooths out the humps and makes a new simpler “short form” power of attorney that will be more easily executed and accepted. Hallelujah!
A power of attorney is an essential part of an overall estate plan. Oh, and by the way, powers of attorney that pre-dated this new law are grandfathered in, although as time goes by it may make sense to update to the new form as it may be more familiar to the financial institutions over time. In any event, understand that the statutory “short form” is only the beginning of a good plan. Modifications to the form are essential to meet all the challenges one may face during their life. It is therefore essential to consult with an experienced elder law and estate planning attorney and get it done right the first time.