As part of good estate planning, attorneys almost always recommend that clients sign at least three documents: (a) a will; (b) a durable power of attorney form; and (c) a health care proxy. Effective September 1, 2009, one of those forms, theNew York State Statutory Short Form Power of Attorney (Durable Power of Attorney), will undergo radical changes as a result of an amendment of New York law. The purpose of this article is to describe some of those changes. Initially, I provide a brief description of the purpose of a Durable Power of Attorney form: the person executing the form (the principal) gives another person or persons (the agent or attorney-in-fact) limited or broad powers over the principal’s assets. Most importantly, a Durable Power of Attorney continues to be effective, even if the principal becomes incapacitated, thereby usually avoiding the need for court intervention and for the court (and not the client) appointing a guardian to manage the client’s assets. When used properly, family members, acting as agents, pay bills and manage the finances of another family member, say, a parent, when a parent is unable to act for themselves as a result of a physical illness or mental incapacity.
More Complex Decisions by Client. Based upon anecdotal evidence of abuses of a Durable Power of Attorney, in which some agents used their authority to make unauthorized gifts to themselves or engaged in other financial abuses, the new law provides for a variety of complex mechanisms to ensure better information and better decisions by the client, as well as greater accountability by the agent. The new form, with its anticipated length to be at least six pages (the prior form was about 2 pages), will now represent an important decision on the part of a client. Thus, before a client signs the new form, an attorney will necessarily engage in a more diligent discussion with the client as to the client’s options.
Validity Depends upon Execution of Form by Agent. Under the new law, a Durable Power of Attorney is not valid until the agent (all of them, if there is more than one) signs it and acknowledges his or her duties as agent. Until now, a Durable Power of Attorney form was simply kept in a client’s file, and the agent was not informed of his or her agent designation until it was necessary for the agent to act. Thus, in order to complete this part of a client’s estate plan, an attorney must now deal with a client’s designated agent, usually a family member. The “acceptance” aspect of the law may have a profound impact on the attorney client relationship, since the attorney will necessarily deal with a client’s agent, and perhaps bring on a possible compromise in the confidential relationship between an attorney and a client. The new form requires the agent to acknowledge specific duties, and provides specific remedies to hold the agent legally liable for any violations of such duties.
Statutory Major Gifts Rider. Under a type of a check off on the old statutory form, the principal could authorize major gifts up to the annual Federal gift tax exclusion amount (currently $13,000 per person). Often, the gifting paragraph on the statutory form was supplemented by a separate provision, in which the principal permitted gifts in excess of $13,000, sometimes in concert with gifts to permit the principal to become eligible for Medicaid under New York’s Medical Assistance Program. The old law sometimes resulted in litigation over the principal’s intentions. Now, under the new law, the principal must complete the Statutory Major Gifts Rider (SMGR), if the principal wishes to authorize his or her agent: (1) to make annual gifts in excess of $500 per individual or charity; (2) to make unlimited major gifts and other property transfers; or (3) to receive gifts or property transfers (that is, the agent makes a gift directly to the agent). Bad News and Good News. The bad news is that the new Durable Power of Attorney form has now become a very complex document. Now, an attorney must spend much more time with a client before a client makes decisions on both the choice of agent and whether the client should sign the SMGR. Further bad news is that the new form may encourage family members to engage in litigation with agents, even when such litigation is unjustified. If there is good news, the new form will force clients to make more decisions. In this potential good news scenario, the client must now think through and make important estate planning decisions as to future gifts to be made by agents. For example, if there were a potential controversy on whether the client intended to make gifts for Medicaid planning or other reasons, the execution of the SMGR will provide clarification as to whether the agent was authorized to make such gifts.