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Financial Planning > Trusts and Estates > Trust Planning

Danger & Opportunity: The Empire State's New POA

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Effective September 1, 2009 the New York State Power of Attorney Law (found in General Obligation Law, Article 5, Title 15 (Sections 5-1501 to 5-1514) has been totally revamped. These changes were in the works for over eight years. During that time the Law Revision Commission was studying how the law could be reworked to better serve the public.

Although in New York we now have the socialite Brooke Astor case as a high-profile example of a high-net-worth person’s rights having been abused by using a Power of Attorney (POA), for some time there have been many of these cases. In fact, Elizabeth Loewy, the lead prosecutor in the Astor case, has been head of the Manhattan District Attorney’s Elder Abuse Unit for many years.

As a result of the “gutting” of the old POA law, I see two trends developing in New York but with ramifications in other states as well. First, people will appoint Monitors, such as financial planners, CPAs, and attorneys, as well as family members, in their POAs. Second, more lifetime revocable trusts will be formed because some practitioners think that the signing provisions of the new law are too onerous. Although those provisions may be onerous, every prudent person–including all your clients, I hope–should have a POA, just like everyone needs a will. Why? Because clients will either not be able to transfer all of their assets into a trust immediately, or in the future they may acquire an asset that cannot be put into a trust, or something, like a sudden illness, occurs before a client is able to put a future acquired asset into a trust.

In addition, in my opinion trusts will become more prevalent due to the recent market meltdown and the immediate post-death control of assets that a client gains from a trust. Clients will have to weigh having a portfolio not subject to any control for a period of at least one month (the realistic time frame from their demise until someone has authority to act on behalf of the estate), versus the additional cost of drafting and funding a trust now.

So what are the provisions that you should consider in helping clients deal with this major change? I will briefly describe each of the relevant provisions of the new POA law in turn.

The law provides for a Monitor.

This monitor oversees the actions of the Agent, but this section should be called the New York CPA or Financial Planner’s Full Employment Act of 2009. Who else is better suited to act as a monitor? It seems very appropriate that financial planners, CPAs, and attorneys could, as a service to their clients, serve in that role. A Monitor will be able to go into court and have the Agent ordered to turn over financial records or even remove the Agent. Although the law states that an Agent has to turn over records within 15 days of a request, my suggestion is that the POA state that the Agent on an ongoing basis must provide the Monitor with those records by sending duplicate statements.

Practically speaking, having a Monitor will only be relevant for clients without nuclear families where everyone gets along. Some of the situations where it may be applicable are the following:

o an 80-year-old mother who has one child she trusts implicitly, but the successor agent is a great niece to whom she does not feel very close: she could use a Monitor for the successor;

o a couple with children between the ages of 18 and 25, who are not sure if they want them to be Agents. They could name Monitors for the children with the Monitor’s authority expiring at a certain age;

o someone without any friends or family members to whom they are close or whom they trust.

The law creates a new mechanism called a Special Proceeding.

Under this provision, all issues concerning a POA can be decided in Supreme Court. These issues would include: removal of an Agent, having an Agent account for his or her actions, demanding that an Agent turn over records, interpretation of a provision, breaking a tie among Agents, determining if a Principal had capacity, and compelling acceptance of the POA.

The law creates a Statutory Major Gifts Rider (SMGR).

The SMGR is a special form on which must be designated all but the smallest gifts. It has to have its execution supervised by an attorney and be executed simultaneously with the POA. The signing of it will be similar to a will signing, requiring at least two witnesses and having something like an attestation clause/acknowledgement for the witnesses.

A SMGR is not necessary for gifts to donees to whom gifts were previously customarily made, as long as they are no more than $500 per such individual or institution per year (the technical corrections bill that is pending would impose an annual cap of $500 for all of these types of gifts).

The law creates objective criteria for POAs to be “judged” by third parties.

Valid reasons to reject a power of attorney include:

o an Agent does not produce the original or an attorney-certified copy or the third party either;

o knows of a report being filed with Adult Protective Services (APS);

o reasonably believes that the POA was procured by fraud or duress;

o feels that a report should be filed with APS;

o or knows or has a reasonable basis to believe that the Principal was incapacitated when signing the POA.

Invalid reasons to reject a POA include:

o the POA was not signed within the last X number of days;

o the period of time between when the Principal and Agent signed the POA is “too long”; and

o the POA was not signed on a third-party’s form.

The law clarifies rules on resignation from and revocation of a POA.

The law sets out how and when both resignation and revocation take place, and clarifies to whom and how notice of such should be given.

How and here an Agent signs a POA.

For signing, these are the typical ways now being used such as “John Doe as Agent for Jane Doe,” or “Jane Doe by John Doe as Agent,” or any other similar method. Also, agents will now have to sign both the POA and SMGR before a notary public.

The law gives Agents access to medical records.

It is now clear that an Agent under the new law have full authority to access medical records to pay bills. Agents will also have the ability to both act in any fiduciary role for Principals, and “step into the shoes” of Principals in all trust and estate matters.

The law sets out how an Agent is compensated.

For an Agent to be compensated, this must be set forth in the POA. If the POA document is silent on the matter of compensation, it still may be possible for Agents to obtain compensation in a Special Proceeding. If a client is going to name a financial planner, CPA, or attorney as Monitor, the method of compensation should be explicitly stated in the Modifications section of the POA, which should be coordinated with a separate retainer letter. Even if the POA is silent on compensation, reasonable expenses of the Agent can be reimbursed.

The law doesn’t prohibit third-party POAs.

What this means is that they can not reject the Statutory POA, but if Aunt Sadie did not go to an attorney and walks into her bank it might be easier for her to sign their form and therefore not require the services of a lawyer.

The law sets a prudent person standard.

Agents are supposed to act in the best interests of their Principal and will be held to the standards of a prudent person. They will also have a duty to keep records of their activities and to not commingle their ward’s assets with theirs.

The law clarifies delegation.

A trap for the unwary is that by looking at the POA form it seems that an Agent can delegate all of his or her authority to another party. Actually, as the Law Revision Commission commentary states, the only delegation allowable is to an attorney or someone else for a finite, specialized task.

The law clarifies the role of third parties.

It makes clear that third parties being asked to allow an Agent to act can require that an affidavit of full force and effect be signed.

The law clarifies the role of joint Agents.

An interesting provision of the statute is that if there are joint Agents, when there is an emergency situation and one of them either can not be contacted, or can not act, there will be an exception to the general rule that they both must act together.

The law clarifies agency in the case of divorce and remarriage.

Termination of a marriage will revoke the agency of the spouse, but if the couple remarries, the POA is revived.

One final point to consider is that under the statute all changes to the standard form must be made in the Modifications section of the POA. In addition, until a technical corrections bill passes in the legislature, the Modifications section of the POA should state what previous POAs are not being revoked by the new POA, since the new law assumes the revocation of all previously executed POAs. Good luck, and for those outside of New York, it might be wise for you to review your state’s power of attorney laws.

Douglas Schnapp, Esq., CPA, practices all aspects of New York and Florida trusts and estates, elder law, and taxation. He represents fiduciaries and beneficiaries in complex surrogate’s court proceedings, has published articles in The CPA Journal, and has spoken before various professional audiences including the New York State Society of CPA’s Eldercare Conference. He can be reached at [email protected].


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