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Helping our clients protect their families, their businesses and their future At Schneider, Pfahl & Rahme, LLP,
we are a small, boutique firm, but we try to work with the best special
counsel in each field of law, whether it be tax, securities, labor, intellectual property, matrimonial,
immigration, litigation or creditor’s rights law, to help our clients fulfill their business, personal and estate
planning needs.
Last month we launched this newsletter series to help educate our clients and friends and to showcase
some of our special counsel in New York State as well as other jurisdictions.
Background: In our last newsletter, we discussed the common estate planning tools used in New York State.
They include: the Power of Attorney, the Health Care Proxy, the Living Will, the Living Trust, the Last Will and
Testament and the Inheritance Trust.
In this newsletter we will discuss in more detail the new Durable Power of Attorney and the new
requirements which will take effect in September of 2009 in New York State.
THE NEW DURABLE POWER OF ATTORNEY
One of the simplest tools of estate planning is the Power of Attorney. The tool is often used in commercial law
for purposes of doing business transactions through a fiduciary agent or “attorney-in-fact”. The designated
attorney-in-fact need not be an attorney at law. In fact, it is usually a spouse or trusted family member of the
Principal. Like attorneys, they, nevertheless, have certain fiduciary duties as agents for their appointing
Principals.
For many years, New York State has approved a statutory, or uniform, short form Power, which is
recognized as the required standard by people in the commercial world throughout New York. The
Principal must sign the document before a notary public. There must also be an affidavit signed by
the attorney-in-fact when the Power of Attorney is used, stating that the Principal is alive and has not
revoked the Power. The power continues until revoked, affirmatively by the principal or by operation
of law through death or disability of the Principal. New York and many other jurisdictions have
recognized a Durable Power of Attorney for several years. The Durable Power did not become void
based on the intervening disability of the Principal. This was a step forward in developing the Power
as an estate planning tool, but created some problems when unscrupulous agents abused their
designated powers after the Principal became disabled.
The NYS Legislature attempted to rectify these and other problems by authorizing a new statutory
short form Power.
Under new NYS legislation (Chapter 644, see: "Chapter 644"), there will be a new Statutory Short
Form Power (“SSF”), required beginning September 1, 2009, for all transactions in New York. This
form varies considerably from the prior form, The Durable Power. The following attempts to
summarize these important changes and the “transitionary” rules.
In summary, the new statutory changes include:
A new requirement that the Agent also sign the SSF before a
notary public, acknowledging the fiduciary duties they are
assuming by becoming the “attorney-in-fact”;
A new requirement that the Principal simultaneously sign a
Statutory Major Gifts Rider (“SMGR”), requiring the same formality
in execution as a Will, if they wish to permit the Agent to make gifts
on their behalf;
Options for the Principal to appoint a “monitor” to whom the agent
must account upon request;
Clarification on the limited circumstances when 3rd parties may
refuse to accept the SSF;
Clarification on how a SSP can be terminated, and
Creation of new special (court) proceedings to determine the
validity of the SSF and/or to enforce accountings to the Monitor or
others.
Under the new law:
- Any “Person” may execute a Statutory Short Form Power of
Attorney.
Any “Person” can execute a Statutory Short Form Power of
Attorney (“SSF”), and they become the “Principal” under the
Agreement. A “Person” is defined to include an individual, a
fiduciary, corporation, estate, trust, partnership, LLC,
governmental entity, or any other “legal or commercial entity.”
An individual executing a SSF, or a Statutory Major Gifts Rider
(“SMGR”) which is now required for gifts above $500/year, must
be eighteen or older.
- Non-statutory Power of Attorney forms executed in New
York can still be used.
This is true, however a natural person can only execute a nonstatutory
form of power of attorney that meets the requirements
set forth in new GOL Section 5-1501B.
- Power of Attorney is no longer affected by later incapacity.
The law provides that the SSF is “durable,” meaning that it is not
affected by later incapacity, unless the form specifically provides
that it is terminated by incapacity of the principal. Section
5-1501A. However, if a
guardian is later appointed,
the agent shall account to the
guardian as opposed to the
principal. Section 5-1501A.
The form also revokes any
prior power of attorney,
unless otherwise provided.
Section 5-1513.
- A SSF, or a non-statutory
Power, executed in New
York, is required to be typed
in 12-point font, or legibly
printed.
The SSF and a nonstatutory
Power must contain
the text of the sections in the
SSF captioned “Caution to
the Principal” and “Important
Information for the Agent.”
Section 5-1501B.
- The SSF must be signed,
dated and duly
acknowledged by the agent
as well as the principal.
Section 5-1501B.1(c).
The principal and the agent
do not need to execute the
Power at the same time, but
the Power does not become
effective until the agent’s
signature is acknowledged.
If more than one agent is
appointed, the Power
becomes valid when the
signatures of all the agents
are acknowledged, “in the
manner prescribed for the
acknowledgment of a
conveyance of real
property.” (Section 5-1501B.
1 and .4) A signature can be
made by a mark, stamp or
electronic signature, unless
the power of attorney “is
recordable under the real
property law,” in which case,
an electronic signature may
not be used. (Section
5-1501.13) . This execution
and acknowledgement by the
agent(s) is a new provision.
It requires the agent(s) to
confirm that they have read
the form, which now
describes their fiduciary
duties, as well as their duties
to account to the principal or
their designated
“monitor” (also new) , when
requested.
- A Power executed outside
of New York, which complies
with the law of that other
state, is, and will be, valid in
New York.
This applies regardless of
whether the Principal is
domiciled in New York.
Section 5-1512.
- Old Section 5-1506
(“Powers of attorney
effective at a future time or
upon the occurrence of a
contingency”) has been
repealed and replaced with
new Section 5-1501B.3(b).
A Power may provide that it
takes effect on a certain date
or on the occurrence of a
specified contingency. The
Power may also require that
a person named declare in
writing that the contingency
has occurred, and the
declaration will be effective
without regard to whether the
contingency has actually
occurred.
- Multiple agents act jointly,
unless the Power states
otherwise.
If prompt action is needed
to accomplish a purpose of
the Power and avoid
irreparable injury to the
Principal’s interest, and a coagent
is unavailable because
of absence, illness, or other
temporary incapacity, the
other agent may act alone.
(Section 5-1508). Further,
the Principal may appoint
one or more successor
agents in case the initial
agents cannot serve. The
agent(s) execute(s) an
agreement by signing with
any “written disclosure of the
principal and agency
relationship.” (Section
5-1507).
- An agent may resign on
written notice to the
Principal.
If the Principal is
incapacitated and there is no
other person to whom notice
may be given, such as a
Monitor or guardian, then
notice of resignation may be
given to a government
agency with the authority to
protect the Principal, or the
agent may ask a court to
approve the resignation
(Section 5-1505). The Power
can now also set forth other
ways for the agent to resign.
- A SSF authorizing the
agent to make gifts must
contain the gift giving
authority initialed by the
principal and be
accompanied by a valid
statutory major gifts rider
(SMGR).
The SMGR must now be
executed in the same
manner as the execution of a
will, which includes being
acknowledged and witnessed
by two witnesses for it to be
binding. (Section 5-1514).
A non-statutory power of
attorney with gift giving
authority must be similarly
acknowledged and
witnessed. (Section
5-1501B.2(b)).
- The principal can appoint
a Monitor to request and
receive records of
transactions by the agent.
(Section 5-1509).
The statute provides for a
Special Proceeding to
compel an agent to produce
a record of receipts and
disbursements and for
various other purposes.
(Section 5-1510). A Special
Proceeding can also be
commenced to determine,
among other things, whether
the Power is valid, to remove
the agent or approve the
agent’s resignation, to
construe any provision of the
power, or to compel its
acceptance. (Section
5-1510).
- An agent’s authority may
be terminated by the
Principal affirmatively
revoking the authority of the
agent and by the death or
incapacity of an agent.
If the agent is the spouse of
the Principal, the agent’s
authority ceases upon the
divorce, annulment or nullity
of the marriage. However,
the termination is not
effective as to third parties
who act in good faith without
actual notice of termination.
Even when a notice of
revocation is recorded, the
third party must have actual
notice. A financial institution
is deemed to have actual
notice after is has had a
reasonable opportunity to act
on a written notice of the
termination following receipt
at its office when an account
of the Principal is located.
(Section 5-1511).
- An agent is not entitled to
be compensated unless
specifically provided for in
the Power.
An agent may be
reimbursed for reasonable
expenses actually incurred.
(Section 5-1506), but cannot
be compensated for their
services unless the Principal
so provides.
- A SMGR must be
executed simultaneously
with a SSF or non-statutory
Power in order to authorize
the agent to make gifts and
transfers of the Principal’s
property.
An SMGR must be witnessed
and acknowledged in the
same manner as a will.
Certain small gifts of under
$500 in a calendar year to
individuals and charities
which continue a custom of
the principal, can still be
made by the agent without
an SMGR, using the SSF.
(Section 5-1502.1.14).
- The authority to create
and fund trusts has been
removed from the SSF and
Requires a SMGR.
It now appears as a specific
provision in the SMGR
allowing the agent to “create,
amend, revoke, or terminate”
an inter vivos trust. The
statutory authority to
designate beneficiaries on
insurance is also removed.
- Provisions regarding
healthcare billing and
payment matters should
allow access to healthcare
records in accordance with
HIPPA requirements. (Section
5-1502K).
This allows the agent to pay
health related bills without
violating federal privacy laws.
However, it does not replace
the need for a Health Care
Proxy if the principal desires
that person to make health
care decisions in their place
and stead (perhaps using
their Living Will as a guide to
treatment).
- There is a new section
labeled “modifications” on
the short form and SMGR.
This allows the principal to
eliminate a power in one of
the constructional sections of
the statute, supplement a
power, or add a provision not
inconsistent with the other
provisions in the form.
(Section 5-1503).
NOTE: The following
provisions apply to ALL powers
of attorney, including those
executed before the effective
date of the new law.
- An agent may be liable
for acts or omissions that
violate a fiduciary duty.
The statute provides a
“prudent person standard of
care” with defined fiduciary
duties. These duties include
record keeping (with
receipts) and the making
available of records within 15
days of a written request by a specified party,
such as a monitor, co-agent, court evaluator, a
guardian, or a representative of the principal’s
estate. (Section 5-1505).
- SSFs properly executed in accordance
with the law in effect at the time of its
execution remain valid and must be honored.
(Section 5-1504).
However, as a practical matter, refusal of an
institution to honor such a Power may now be
resolved in an expedited “special proceeding”
to determine the validity of the Power.
- A third party may not refuse to honor a
power of attorney form or a SMGR properly
executed under the laws in effect at the time
of execution of the document without
reasonable cause. (Section 5-1504).
Reasonable cause to refuse a Power exists
only when an agent refuses to provide the
original power of attorney, the third party has
actual knowledge of or a reasonable basis for
believing that (i) the principal has died, (ii) is
incapacitated, (iii) was incapacitated when the
power was executed, or (iv) the power was
procured by fraud, duress or undue influence,
when the agent has actual notice of
termination or revocation of the Power, or
when a title insurance company refuses to
underwrite title insurance for a transfer of real
property made pursuant to an SMGR or a nonstatutory
power without express purposes of
the principal. The refusal of an institution to
honor a Power may now be resolved in an
expedited “special proceeding” to determine
the validity of the Power.
- It is unreasonable for a third party to
require their own form or to object because
of the lapse of time since the execution or the
lapse of time between acknowledgment by
the principal and the agent. (Section
5-1504.1(b)).
However, the third party may require the agent
to execute an acknowledged affidavit, which
states that the Power is in full force and effect.
The affidavit may also state that the agent has
no actual notice of any facts indicating that the
power has been modified in any way that
would affect the immediate transaction. The
affidavit is conclusive proof to the third party
Power of Attorney
Key Changes
- A new requirement that the
Agent also sign the SSF before
a notary public,
acknowledging the fiduciary
duties they are assuming by
becoming the “attorney-infact”;
- A new requirement that the
Principal simultaneously sign
a Statutory Major Gifts Rider
(“SMGR”), requiring the same
formality in execution as a
Will, if they wish to permit the
Agent to make gifts on their
behalf;
- Options for the Principal to
appoint a “monitor” to whom
the agent must account upon
request;
- Clarification on the limited
circumstances when 3rd parties
may refuse to accept the SSF;
- Clarification on how a SSP
can be terminated, and
- Creation of new special
(court) proceedings to
determine the validity of the
SSF and/or to enforce
accountings to the Monitor or
others.
Daniel H. Schneider, Esq. Schneider, Pfahl & Rahme, LLP 2 Park
Avenue, 19th Fl. New York, N.Y. 10016 Tel. (212) 629-7744 Fax. (646)
514-0297 Mobile (845) 616-6909
New EMail: DanSchneiderEsq@gmail.com
Website: www.schneiderpfahl.com
This publication is distributed with the understanding that
the author, publisher and distributor are not rendering legal, accounting
or other professional advice or opinions on specific facts or matters,
and, accordingly, assume no liability whatsoever in connection with
its use.
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