March 8, 2021
On December 15, 2020, New York enacted significant revisions to its laws governing statutory short form powers of attorney (POA). The purpose of this alert is to highlight some important changes that were made, and to provide guidance as to steps that should be taken before the new law takes effect on June 13, 2021. Although the changes were intended to simplify and increase acceptance of POAs by financial institutions, this remains an incredibly complex and confusing area that requires skilled legal counsel to navigate.
Changes Made By The New Law
1. Allowance for Substantially Compliant Language
Under current New York law, a short form power of attorney that deviates from the exact wording of the form provided in the statute is invalid. In practice, this led many institutions to institute a policy of refusing to accept any POA form except their own. It also led to the rejection of forms that had only insignificant deviations from the statutory language, and unfortunate situations in which principals and agents believed that they engaged in a transaction that complied with the law, only to have a court find that they did not.
Under the new law, a POA that “substantially conforms” to the required language will be deemed valid, notwithstanding that the form contains an insignificant mistake in wording, spelling, punctuation or formatting, or uses language that is essentially the same as the statutory form. The new law specifies that a POA must include language that “substantially conforms” to the “Caution to the Principal” and the “Important Information for the Agent” language set forth in NY General Obligations Law §5-1513. Because the new law calls out those two warnings for special attention, anyone that is asked to prepare or accept a POA should take special care to insure that the POA includes those warnings with only the slightest variations, and preferably none. Failure to include those warnings puts the POA at risk of being rejected by a recipient or invalidated by a court.
2. Elimination of the Statutory Gift Rider
The current POA is a multi-part document that encompasses both the POA form and an optional statutory gift rider (“SGR”) that is required to be separately executed if the principal wishes to authorize the agent to make gifts of the principal’s money or any other property (such as real estate). The two documents have different execution requirements, leading to unnecessary confusion. The new POA eliminates the need for a separate SGR, by allowing the principal to authorize certain gifts in the revised POA form itself. Under the new law, a principal may modify the standard form of POA to authorize the principal to make gifts in excess of $5,0001 in any one year, to make gifts to him or herself, or to make other gift transactions and/or changes to interests in the principal’s property, without the need for a separate SGR.
3. Expand Agent’s Authority Regarding Health Care
The new statute greatly expands the principal’s ability to grant authority over health care financial matters. The new law allows a principal to authorize an agent to:
- handle the principal’s benefit entitlements and payment obligations;
- receive HIPAA protected health information from “health care providers” and “health plans,” in order to ascertain the benefits to which the principal is entitled and to determine the legitimacy and accuracy of charges for health care provided to the principal;
- obtain the health care benefits to which the principal is entitled;
- meet the principal's financial obligations for health care provided to the principal; and
- represent the principal, and to act as the principal's personal representative, with respect to financial matters pertaining to the principal's health care.
Although the new statute greatly expands the agent’s permissible authority over health care matters, that authority extends only to financial matters and does not permit the agent to make health care decisions for the principal. Such decisions will still require a separate, validly executed health care proxy.
4. Sanctions for Unreasonable Refusal to Accept a Valid POA
Financial firms often require use of their own form of a POA and refuse to accept a statutory form. They need not explain the reason for rejection, and existing law does not provide for monetary sanctions based on an unreasonable refusal. The only recourse for the aggrieved person is to seek an injunction requiring that the POA be honored. The new law creates a presumption that the power of attorney is valid, and a court will also be permitted (though not required) to award damages, including reasonable attorney’s fees and costs, against anyone who unreasonably refuses to honor a valid POA. The addition of a damages remedy was aimed at preventing financial and other institutions from rejecting valid POAs for reasons unrelated to the validity of the POA, such as the practice of rejecting POAs that were not printed on the institution’s preferred form. The damages remedy applies only to the unreasonable refusal to accept the agent’s authority under a statutory short form POA that substantially complies with the requirements of the statute; an individual or financial institution may continue to refuse to accept a non-statutory short form power of attorney for any reason, without being held liable for damages.
5. Safe Harbor for Third Parties Acting in Good Faith And Without Actual Knowledge
In exchange for imposing liability for the unreasonable refusal to accept a valid POA, the new law creates a safe harbor under which the recipient of a POA will be insulated from liability and held harmless if the recipient acts in good faith when accepting the POA, even if the POA is later determined to be invalid. To fall within the safe harbor, certain conditions must be established, including:
- Acknowledged Signature. The principal’s signature must appear, on the face of the POA, to have been verified before a notary public or other individual authorized to take acknowledgements; and
- No Actual Knowledge of Infirmities. The recipient cannot have actual knowledge that the principal’s signature is a forgery, that the POA is void, invalid, or terminated, or that the agent is exceeding or improperly exercising the agent's authority. A bank or other financial institution is not considered as having actual notice that a POA issued by an account holder has been revoked or terminated unless it receives written notice of the revocation or termination at the office at which the account is located and has had a reasonable opportunity to act on that notice. Moreover, the new law provides that a business that conducts activities through employees is without actual knowledge of a fact relating to a POA , a principal, or an agent if the employee conducting the transaction involving the POA is without actual knowledge of the fact after making reasonable inquiry with respect thereto.
What To Do When Asked to Honor A POA
- Act Fast. Under the new law, the recipient of a POA has only 10 days after receiving a POA in which to accept it, reject it, or ask for an affidavit from the agent or an opinion of counsel. The recipient of a POA should promptly forward it to an employee who is trained in the relevant legal requirements for response.
- Request An Affidavit From The Agent. If there is any concern about an agent’s authority to act under the POA, the person being asked to honor a POA can request an affidavit from the agent concerning the principal, the agent or the POA. The request should ask the agent to certify that he/she is not aware of any facts indicating that the POA: (a) is not valid and effective; (b) has been terminated, revoked or modified prior to the execution of the affidavit; or (c) has been modified in any way that would affect the ability of the agent to authorize or engage in the transaction. Every business that deals with POAs on a regular basis should use a form that lists various standard grounds for rejection, with space to include additional grounds. The person requesting an affidavit must either approve or reject the POA within 7 days of receiving the affidavit, but the statute does not specify the consequences for failing to act within 7 days.
- Request An Opinion of Counsel From the Principal. Before accepting or rejecting a POA, the recipient may also request an opinion of counsel (“Opinion”) from the principal, which must be provided at the principal’s expense. It can be expected that Opinions will be required routinely, and this (and the projected expense) should be discussed with the principal when the POA is signed. The Opinion can be as to any matter of law concerning the POA, but the person making the request must provide the reason for the request. The statute does not specify how long a person requesting an Opinion has in which to accept or reject a POA after receiving the requested opinion.
- Accept or Reject the POA. If the recipient of a POA elects to reject it, either before or after requesting an affidavit and/or Opinion, it must send a written notice listing all of the reasons the POA is being rejected to the principal and the agent. Reasons for rejection include:
- non-conforming form;
- missing or wrong signature;
- invalid notarization;
- unacceptable identification;
- the POA is not a signed original or attorney certified copy;
- suspicion of elder abuse;
- the agent is named on a money-laundering or anti-terrorist list; and
- signature does not match signature on file given at or about the time the POA was signed.
In deciding whether to include a particular ground for rejection, one must tread a fine line. On one hand, any reason for rejection that is not specified in the initial rejection notice will be deemed waived, which suggests that one should err on the side of inclusion. On the other hand, any ground that is deemed unreasonable could subject the rejector to sanctions.
The new law permits the party receiving the rejection notice to respond in writing to the rejection notice (presumably to dispute the reason(s) for rejection). If such a response notice is sent, the party that rejected the POA must then respond to the response notice within seven (7) business days of receipt of the same, and must note in the response whether the POA will be honored or finally rejected.
Additional Technical Changes
The new law makes other technical changes, including the following:
- a third party may sign at the direction of a person who is physically unable to sign; and
- there are new record keeping requirements for agents.
Effect of New Law on Prior POAs
According to the new law, a POA, and any optional SGR, valid at the time executed by the principal, will remain valid even after the effective date of the new law (June 13, 2021), provided that it was valid under the law in effect at the time of execution.
The new statute raises almost as many questions as it answers. One issue not addressed by the new law is the effect of a safe harbor provision on the validity of underlying transaction. For example, if the recipient of a POA has no reason to question the validity of a POA, and is provided an affidavit from the agent as well as an Opinion, but it turns out that the principal was either dead [or not of sound mind]2 or that the principal’s signature was forged, the recipient of the POA will be held harmless if it acts on the POA in good faith. But what happens to the underlying transaction? Presumably, it is invalid. What about subsequent innocent transferees who change position in reliance on the validity of the transaction? Do such innocent transferees have any recourse against anyone? Is there no recourse against the person that acted in good faith and without actual knowledge even if it acted negligently? What about recourse against the principal or agent?
Also left unanswered by the new statute is what happens if the recipient of an invalid POA fails to reject it within 10 days, or within 7 days of its receipt of a requested agent affidavit and/or opinion of counsel. Is it required to treat the POA as valid despite its reasonable belief that it is not? Will it be subjected to sanctions for failing to reasonably accept or reject the POA in a timely manner?
Please contact Robert Lillienstein (firstname.lastname@example.org), Paul Roder (email@example.com), Alan Kupferberg (firstname.lastname@example.org) or Corey Rashkover (email@example.com) if you have any questions or concerns regarding the recent changes to New York State’s POA law.
1 This amount is only $500 in the current law and this limitation is often the reason why parties currently elect to execute an SGR.
2 The current statute makes the POA “durable”, i.e., unaffected by the principal’s incompetence. This was not changed in the new statute.