Modifications to the New York Power of Attorney ought to simplify the shape and streamline acceptance by monetary establishments Schnader Harrison Segal & Lewis LLP

“Don’t make the process more difficult than it is.”

– Jack Welch

Virtually anyone who has prepared or signed a legal “short form” for a permanent power of attorney in New York in the past ten years will react the first time to navigate through the form: “Huh?” While the 2009 law was an attempt of the legislature was to dispel concerns about possible abuse of powers of attorney, especially in relation to the elderly, the resulting “short form” and its companion, the legal gift driver, caused confusion. cumbersome and inflexible document. For years, practitioners and bar associations proposed changes to the existing law and legal form. To the delight of many, the Assembly and Senate passed a new Power of Attorney Act in 2020, which was signed by Governor Andrew Cuomo on December 15, 2020.

We note that the new law will actually come into force on June 13, 2021; Until then, powers of attorney can be established in accordance with applicable law.

As a backdrop, a power of attorney is an integral part of a comprehensive estate plan. It enables a person (the “client”) to designate and authorize an agent to conduct financial transactions on behalf of the client. For example, in the event of a stationary or other incapacity for work of the client, the client’s representative could step in under an appropriately designed power of attorney and write checks to pay the client’s rent, medical bills and other costs.

ANALYSIS

The new Power of Attorney Act addresses several issues that are problematic under current law.

1. Essential Compliance. According to current law, the power of attorney must be identical to the wording used in the legal short form – an error in the form can invalidate the power of attorney. Under the new law, the form of the power of attorney need only “essentially” correspond to the wording of the statute, which means that it is much less likely that a power of attorney will be invalid due to insignificant errors in the form. In fact, the new law creates a presumption in favor of the validity of a power of attorney.

2. No gift driver. The new law makes two major changes to gift giving. Under current law, an agent is limited to giving away a total of $ 500 each year on behalf of the principal. Gifts over $ 500 per year must be approved by a gift rider (who must be notarized and witnessed by two witnesses). Under the new law, the limit of $ 500 will be increased to a total of $ 5,000 per year and the gift driver will be excluded. Gifts that exceed the maximum of $ 5,000 can be made through an optional modification section on the form itself.

3. Signature on instruction of the client. The new law allows a client, in the presence of the client, to instruct someone (other than a representative or successor representative) to sign the power of attorney on his behalf. Current law does not allow anyone but the principal to sign the power of attorney.

4. Sanctions for the bank’s refusal to comply with the authorization. The new law provides protection (i) for principals, of third parties (such as a bank) who inappropriately refuse to accept their power of attorney, and (ii) for third parties who rely on the validity of a power of attorney.

Specifically, the new law provides a ten business day period within which a third party presented with a power of attorney must either comply or reject the form (and in the event of rejection, the new law describes what needs to be in the required written notice of contain such a rejection). If the third party refuses to accept the power of attorney, the client can initiate a special procedure to force a third party to comply with the form. In the event that the court determines that the third party has inappropriately refused to comply with the power of attorney, the court is entitled to grant the client compensation, including reasonable attorney fees and costs.

This provision was included because under applicable law, banks and financial institutions often require the use of their own forms (instead of the New York Legal Form) and can do so without being penalized for refusing to use a properly executed legal form. In addition, the new provision tries to take into account the fact that even within a financial institution there is generally no uniform policy as to whether and when a legal form is accepted.

The consequence of protecting the client is a safe haven that protects a third party who accepts a power of attorney as valid in good faith. In particular, if a third party accepts a power of attorney that appears to have been properly executed, the third party is not liable for relying on the presumption that the power of attorney was actually properly executed.

The protective measures mentioned above were taken from the law on the unitary power of attorney applied in many countries.

5. Maintenance of records. The new law clarifies that the agent is required to keep records and receipts of all payments and transactions that are carried out on behalf of the principal.

TAKEAWAYS

The legislative changes summarized above should remove much of the complexity and confusion surrounding the current legal authority in New York. The 2009 law had the proxy form so complicated that some attorneys reported that it took more time to discuss the proxy form with clients than it took to review their wills. In particular, the elimination of the need for a separate “legal gift driver” to approve large gifts greatly reduces the complexity and length of the form and, consequently, the time it takes to review and execute the form. Customers who want to empower their agent to give gifts over $ 5,000 can do so by making a simple change with that in mind. In addition, it has been a recurring source of frustration that while agents have fully valid legal powers, they are turned down by banks and other third parties who insist on using their own powers of attorney. The new law seeks to alleviate this frustration by providing remedial action (and possible sanctions) for an improper refusal to comply with a valid power of attorney, while protecting third parties from liability for complying with a valid power of attorney.

Time will tell if these changes will improve the situation. Although the form has been simplified by the new law, as having a valid power of attorney is an integral part of an individual’s estate plan, it is advisable to consult an experienced estate planning advisor regarding the creation and execution of a power of attorney in accordance with the overall estate plan.

As mentioned above, the new law will come into force on June 13, 2021. However, it is important to note that the amendment to the law does not affect the validity of an existing power of attorney, which is executed in accordance with the provisions of the applicable law.

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