Massive Modifications To New York’s Power Of Attorney Law Are Now In Impact – Law Division Efficiency

On June 13, 2021, New York’s new law regarding statutory
powers of attorney (“POA”) took effect.  The purpose
of this article is to highlight some important changes that
were made, and to provide guidance as to steps that should be taken
when dealing with POAs.  Although the changes were intended to
simplify and to increase acceptance of POAs by financial
institutions, this remains an incredibly complex and confusing area
that requires planning and skilled legal counsel to navigate.

Changes Made By the New Law

1. Allowance for Substantially Compliant Language

Under the prior law, a power of attorney that deviated from the
exact wording of the form provided in the prior statute was
invalid.  In practice, this led many institutions to refuse to
accept any power of attorney 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 had engaged in a
transaction that complied with the law, only to have a court rule
they had not. 

Under the new law, a POA that “substantially conforms”
to the language set forth in Gen. Obl. L. §5-1513 will be
valid even if it:

• contains an insignificant mistake in wording, spelling,
  punctuation or formatting, or the use of bold or italic type;
• uses language that is essentially the same as, but is not
  identical to, the statutory form, including utilizing language from
  a previous statute;
• modifies or excludes certain clauses, provided that the
  modifications and exclusions are specified in section (h) of the
  form; or
• includes additional powers not specified in the statute,
  provided that the additional powers are specified in section (h) of
  the form.

Although the new law provides flexibility in drafting, two
clauses that the lawmakers deemed essential cannot be
omitted.  They are the “Important Information
for  the Agent” and the “Caution to the
Principal” 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 ensure that the POA
includes those warnings with only the slightest variations, if
any.

2. Sanctions For Unreasonable Refusal To Accept A Valid
POA

Under the old law, there was no effective sanction against a
third party that refused to accept a valid power of attorney. 
Although an aggrieved principal or agent could commence a special
proceeding seeking injunctive relief, doing so was cumbersome and
expensive, and was rarely done.  A court may
now award damages, including reasonable
attorney’s fees and costs, if the court finds that the
third party acted unreasonably in refusing to honor the agent’s
authority.

When Is It Unreasonable To Reject A
Valid POA?  The new law specifies certain practices
that are declared to be unreasonable, although the list is not
exhaustive.  Under the new law, it
is unreasonable to refuse to accept a
properly executed POA if the only reason for the refusal is:

• The POA is not on a form prescribed by the third party to whom
  the power of attorney is presented;
• There has been a lapse of time since the execution of the POA;
  or
• There has been a lapse of time between the date of
  acknowledgment of the signature of the principal and the date of
  acknowledgment of the signature of any agent.

When Is It Reasonable To Reject A
POA?  Section 5-1504 of the new law provides a list
of situations when it is reasonable to reject a POA or the use
thereof, such as actual knowledge that a signature is not genuine,
improper execution of the POA, the refusal of the purported agent
to provide an original or attorney certified copy of the POA upon
request, knowledge that a report has been made or should be made
alleging physical or financial abuse, neglect, exploitation or
abandonment of the principal by the agent, actual knowledge or a
reasonable belief that the principal is dead, actual knowledge that
the principal was incapacitated at the time of execution of the
POA, actual knowledge that the principal is incapacitated (in the
case of a non-durable power), reasonable belief that the POA was
procured through fraud, duress or undue influence, or actual notice
of the termination or revocation of the POA.  In addition, it
will be reasonable for a financial institution to reject a POA if
the agent is named on an anti-money-laundering or anti-terrorist
list or if the signature of the principal or agent does not match
the signature on file given at or about the time the POA was
signed.  This list is not exhaustive.

3. Safe Harbor for Third Parties Acting in Good Faith And
Without Actual Knowledge

While imposing liability for the unreasonable refusal to accept
a valid POA, the new law also 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 met,
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.

When Is A Business Considered To Have Actual
Knowledge?  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 is a
reasonable inquiry will necessarily vary from situation to
situation.

4. Elimination of the Statutory Gift Rider

Under the old law, the power of attorney was a multi-part
document that encompasses both the power of attorney form and an
optional statutory gift rider (“SGR”) that was required
to be separately executed if the principal wished to authorize the
agent  to make gifts of the principal’s money or any other
property (such as real estate). The two documents had different
execution requirements, leading to unnecessary confusion and
mistakes in execution.  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
agent to make gifts in excess of $5,000[1] 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.

5. Expand Agent’s Authority Regarding Health Care

The new statute greatly expands the principal’s ability to
grant authority over financial matters relating to health
care.  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;
• receive 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.

6. Limited Impact On Many Commercial Transactions

The new law is applicable to personal banking/financial
transactions, i.e., consumer banking/financial transactions. 
Per N.Y. Gen. Oblig. Law § 5-1501C (Powers of attorney
excluded from this title), the statute is inapplicable to:

• A power of attorney given primarily for a business or
  commercial purpose;
• A power of attorney to the extent coupled with an interest in
  the subject of the power of attorney;
• A power of attorney given to or for the benefit of a creditor
  in connection with a loan or other credit transaction; and
• A proxy or other delegation to exercise voting/management
  rights with respect to an entity.

7. 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.

8. Effect of New Law on Prior Powers of Attorney

• According to the new law, a power of attorney, 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.

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, who must respond in writing.  A sample response
  notice can be found here. 
• 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.  A
  sample agent affidavit can be found here. 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.  A sample
  rejection notice form can be found here.  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.  A
  sample Opinion can be found here.  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.  A person
  that is asked to accept a POA may rely upon an Opinion without
  further investigation.
• 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.  A sample rejection notice can be found here. 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 an anti-money-laundering or
    anti-terrorist list; and
  • the signature does not match the 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 rejecter 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 in writing within seven (7) business days of receipt of
the same, and must state whether the POA will be honored or finally
rejected.

Footnote

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.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.