Daniel G. Fish
The power of attorney is an extremely useful tool in the event of incapacity for work, as it can avoid the need for costly, time-consuming and intrusive guardianship. However, it has turned into such a complex document that it needs the assistance of a lawyer to ensure it is properly executed.
The agent’s authority to make gifts out of the principal’s assets has made the document so confusing. Traditionally, the client could monitor the agent’s actions and would be aware of inappropriate actions. The advent of the “permanent” power of attorney, which allowed the agent to continue acting even if the principal lost capacity, raised concerns that the agent was acting inappropriately and that the principal might not be aware or object.
Agents under current legal authority (GOL §5-1501 ff.) Cannot give accumulated annual gifts over $ 500 unless a separate document, the legal gift driver, is executed at the same time. While the intent was to avoid abuse of financial elders by unscrupulous agents, the result has been that power of attorney has not been available to many who cannot afford legal assistance. It prevented agents from making the necessary estate planning or tax measures that required a gift.
In the state of New York there are still pending laws to reform the power of attorney law (A. 5630, introduced by Congregation member Helene E. Weinstein and p.3923, introduced by Senator Brad Hoylman). It would eliminate the legal gift driver and gifts over $ 5,000 per year could be approved in the amendment section. The legislation deals with the complexity of the form, the precise wording and the penalties for those who wrongly refuse to comply with the document.
complexity
The most serious problem with the current Power of Attorney Act arises from the fact that where there was one form before 2009 there are now two different forms. The first form is legal power of attorney and the agent is prohibited from giving gifts over $ 500 per year. The second form is the statutory gift driver, which authorizes the agent to give annual gifts in excess of $ 500. The two forms are so different that their connection is like Frankenstein’s monster. They must run concurrently, but their execution requirements are different. The legal short form must be signed by the client and the representative in front of a notary. The legally required gift driver must be signed by the client in front of a notary and two witnesses. In the COVID-19 situation, the execution, which requires the presence of the principal, agent, notary and two witnesses, is excessively burdensome, and all the more so when it is done by remote notary and testimony.
It is a misnomer to describe the power of attorney as a legal short form. Before 2009, the form was three pages long and could be purchased from a stationery store. The current form is 12 pages long. In addition to the notarized signatures and witness statements, there are 23 places on the forms for initialization by the client.
A comparison with the Health Care Proxy is instructive. The Health Care Proxy enables the school principal to appoint an agent to act in the event that the school principal is no longer able to make medical decisions. The agent is given power over life and death through the client. Despite this vast and irreversible authority, the healthcare proxy can be a page long. The form is available free of charge from the New York State Department of Health website (https://health.ny.gov/publications/1430.pdf). You don’t need a notary, just two disinterested witnesses. The agent does not need to sign the healthcare proxy. The only limitation is that the agent cannot make diet and hydration decisions, but even that limitation can be overcome if the client specifically gives the agent that authority. The aim is to make the Health Care Proxy easy to run and generally available. The power of attorney should have the same aim.
The pending legislative proposal would dispense with the legal gift driver and fall back on a single document without testimony. To protect against financial exploitation, giving the agent the power to give gifts would be included in the amending section of the document.
Exact formulation
The second area of the legislative reform concerns the requirement of the “exact wording” of the law on general obligations § 5-1501 (0):
“Legal Authority” means an authority that meets the requirements of paragraphs (a), (b) and (c) of Subdivision 1 of Section 5-1501B of this Title and the exact wording of the form under Section 5-1513 of this Title. “
This has led some financial institutions to decline powers of attorney due to minor or insignificant changes to the legal form. Current legislation would delete the words “exact wording” and replace the phrase “substantially compliant”.
Compensation for unreasonable denial of power of attorney
The general compulsory law § 5-1510 currently allows the initiation of special proceedings if the acceptance of the power of attorney is inappropriately refused. The only means, however, is an order that forces acceptance. The third area of legislative reform would allow the court to award damages, including legal fees and costs. Safe Harbor provisions would be included.
Increase in the number of annual gifts
Pending legislation would waive the legal gift driver, but would require the client to expressly authorize the agent to give annual gifts over $ 5,000 per year in the amendment section of the power of attorney. The increase (from $ 500) in the amount an agent could give each year without special authorization is an appreciation of the need for those with limited resources to have access to proxy. This proposal is a major improvement in the practical application of this Estate Planning Document.
Conclusion
The power of attorney is misunderstood and underestimated and viewed pejoratively as a “boiler plate”. In fact, it should be viewed as the most valuable advance directive for protecting a person’s independence and dignity. Without proper planning, accounts can be frozen on disability and require guardianship to decrypt. With proper authorization, financial matters can seamlessly flow to an agent to manage.
Under common law, one person could draft an agreement authorizing another person to act on their behalf in financial matters specifically described in the bulleted list described in the document. In 1948, the legal short form was enacted which shortened the power of attorney by simply listing the powers of the agent and then defining them in the law rather than in the document itself. The next major revision took place in 1975 with the advent of the permanent power of attorney, under which the client was allowed to authorize the authorized representative to act even if the client were to be incapacitated at a later point in time.
The next major legislative revision took place in 2009 (and the technical revisions in 2010), resulting in the current legal system. The pendulum has swung far too far towards preventing financial abuse of the elderly at the expense of the many agents (usually close family members) who try to provide assistance but lack the means to pay for legal advice. It’s time to simplify the power of attorney.
Daniel G. Fish is a partner at McLaughlin & Stern.
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