May 12, 2021
Powers of attorney can protect against the decline of one’s mental ability and are a vital part of an estate plan. Late last year, New York’s legislature revised the law governing statutory short form powers of attorney (POA), and this article describes the most significant changes provided for in the recent legislation, which is scheduled to take effect as of June 13, 2021.
Financial And Other Transactions
Currently, many financial institutions refuse to accept any POA form except their own. There appear to be two reasons. First, there is an institutional bias to prefer a form prepared by one’s own attorneys; and second, the present law invalidates a POA which deviates from the exact wording of the statute. Institutions do not want to review every POA to see if it complies with the statute and this has led to blanket rejection of POAs - even if they fully comply or have seemingly insignificant deviations from the statute.
As of June 13th, financial institutions can no longer reject a POA with impunity. The new legislation provides that a POA that “substantially conforms” to the required language will be deemed valid, even if the form contains an insignificant mistake in wording, spelling, punctuation or formatting, so long as the language is essentially the same as the statutory form. Further, the POA must be accepted or rejected within 10 days of submission, unless the institution requests further information as described below.
The revised statute adds a potential financial penalty which should stop the out-of-hand refusal to accept a statutory POA form. Under existing law the institution need not explain its rejection and one’s only recourse is to seek a court order directing that the POA be honored. However, as a practical matter, legal fees to obtain such an order are costly and the institution cannot be sued for damages based on an unreasonable refusal, which results in fewer people challenging such rejections in court. The new law, however, creates a presumption that the POA is valid, and a court will also be permitted (though not required) to award damages, including reasonable attorney’s fees and costs, for an unreasonable refusal to honor a valid POA. If institutions run the risk of having to pay damages for refusing to accept the POA, as well as paying the aggrieved individual’s legal fees, the expectation is that institutions will no longer unreasonably reject a valid POA.
It should be noted that the damages remedy applies only to the unreasonable refusal to accept a statutory POA. New York law does not prevent the use of non-statutory POAs, and an individual or financial institution may refuse to accept a non-statutory POA for any reason without being held liable for damages.
In exchange for imposing liability for the unreasonable refusal to accept a POA, the new law creates a safe harbor under which the institution (or other recipient) will be insulated from liability. Several conditions are necessary to claim protection of the safe harbor, but two will be particularly relevant to our clients. They are:
1. The institution can ask the agent to provide an affidavit concerning (i) the principal, (ii) the agent and/or (iii) the power of attorney itself. The request may ask the agent to certify that he or she is not aware of any facts indicating that the POA: (a) is not valid; or (b) has been terminated, revoked or modified, and specifically that it had not been modified in any way affecting the agent to authorize or engage in the transaction. If an affidavit is requested, the institution must either approve or reject the POA within 7 days of receiving the affidavit; and
2. The institution may also request an opinion of counsel (“Opinion”) as to any matter of law concerning the power of attorney provided that the institution gives the reason for the request. The expense of the Opinion is to be borne by the principal. The statute does not specify a time within which the institution must accept or reject a POA after receiving the requested Opinion.
Affidavits are routinely requested under current practice and the statute formalizes their use. The provision regarding Opinions, however, is new and it can be expected that institutions will regularly seek Opinions, increasing the legal expenses borne by the client.
Having one’s POA readily accepted by an institution is of obvious importance, but it is a technical issue. Of perhaps greater importance to an individual is the personal aspect of a POA, such as how it may be used for estate planning purposes. Many of our clients make gifts to family members or expect to in the future, and gift-giving can be a major part of the estate plan. The new law changes how a POA can authorize gift-giving.
Current law prohibits an agent from making gifts of more than $500 annually unless the principal signs a separate document known as a “Statutory Gifts Rider” (“SGR”), which oftentimes grants unlimited gifting powers to an agent.
The SGR is a cumbersome and complex document - and deliberately so. When first enacted, statutory POAs did not limit gift-giving, nor was the maker cautioned about its potential misuse by an unscrupulous agent. Often, when the principal became incompetent the agent used the opportunity to make gifts to themselves or confederates. In an attempt to prevent this form of elder abuse the legislature changed the POA statute to require a separate SGR if gifts over $500 were to be authorized. The SGR is lengthy and has different execution requirements from the POA itself. It caused unnecessary confusion.
The new law does two things which are extremely important from an estate planning perspective. First, the law increases gift-making authority to $5,000 annually. Moreover it eliminates the separate SGR and allows the POA to be modified to expressly authorize larger gifts.
It should be noted that the new law does not invalidate existing POAs. However, it is not clear if the existing POA form will have the same ready acceptance by financial institutions as will the new POA form. Clients who wish to execute the new form should contact their trust and estate attorney.