In the intricate world of financial and estate planning, there’s a hidden gem, often underestimated but immensely powerful – the Power of Attorney (POA). Whether you’re just starting your journey into adulthood or firmly established in it, the significance of this legal document cannot be overstated. Let’s dive into why every one of us, irrespective of age, should grasp the importance of a POA.
The Absence of a POA: A Risky Proposition
Imagine a situation where you or a loved one becomes incapacitated due to illness or an unforeseen accident. Without a valid Power of Attorney in place, a complex and costly legal process could unfold. Your financial matters could get tied up in protracted court proceedings to appoint a guardian, a situation nobody wants to deal with during a personal crisis.
College-Bound Students and the POA
Many of us associate POAs with older adults and retirees. However, here’s a fact that might surprise you: every parent of a student heading off to college should consider having their young adult execute a POA. This document could enable parents or trusted adults to manage financial matters or even gain access to their child’s living quarters, should the need arise.
Recent Changes in New York’s POA Law
For those residing in New York, a recent overhaul of the state’s power of attorney law has significant implications. These changes came into effect in June 13, 2021, and they are designed to simplify the POA form and reduce the frequency of financial institutions refusing to honor validly executed POAs. Let’s take a closer look at some key modifications:
1. Substantial Compliance with Statutory Language
The new law relaxes the strict requirement for POA forms to exactly mirror the statutory language. Previously, even minor deviations from the statutory language could invalidate a POA. Now, a form can be valid as long as it “substantially conforms” to the language provided in the General Obligations Law §5-1513. This allows for minor mistakes in spelling, punctuation, formatting, or small deviations from the statutory form language. However, two warnings included in NY GOL §5-1513 must still be present in the POA: the “Important Information for the Agent” clause and the “Caution to the Principal”.
2. Elimination of the Statutory Gift Rider (SGR)
Under the old law, the principal had to execute a separate Statutory Gift Rider to authorize the agent to make gifts in excess of $500 annually. The SGR required two witnesses to the principal’s signature and a notary’s acknowledgment. The new law simplifies this process by allowing a principal to authorize the agent to make gifts annually in an aggregate amount of $5,000 without needing a separate SGR. Additionally, the principal can now modify the standard POA form to authorize the agent to make gifts over $5,000 in any one year, make gifts to themselves, or make other gift transactions and changes to interests in the principal’s property without the requirement of a separate SGR. Gifting powers must expressly be stated in the modification section and can include gifting to (digital assets, more than personal exclusion amount, gifting to the agent, if you choose). Therefore, it is good practice to use specificity when drafting modifications for gifting powers.
3. Penalties for Unreasonable Refusal to Accept a Valid POA
One significant issue in the past was that financial institutions often refused to accept validly executed POAs or insisted on their proprietary POA forms. The prior law did not provide punitive remedies for these unreasonable refusals. However, the new statute empowers courts to award damages, including reasonable attorney’s fees and costs if a third party is found to have acted unreasonably in refusing to accept a valid POA. The law does outline specific circumstances when the rejection of a POA may be deemed reasonable and sets forth a timeline. The recipient of a POA has 10 days to either accept, reject it, or request an affidavit from the agent or an opinion of counsel from the principal. The recipient must accept or reject the POA in writing within seven days after receiving the affidavit or opinion of counsel.
4. Safe Harbor for Third Parties Acting in Good Faith
The new law creates a safe harbor for recipients of a POA who act in good faith when accepting the POA, even if it’s later deemed invalid. Certain conditions must be met for this safe harbor to apply: (a) the POA must have the principal’s acknowledged signature verified by a notary public or person authorized to take acknowledgments, and (b) the recipient must not have “actual knowledge” that the principal’s signature is forged, that the POA is invalid, or that the agent is abusing their authority.
5. Execution Requirement
A statutory short form power of attorney or a non-statutory power of attorney executed in New York by a principal must meet specific execution requirements. The document must be typed or printed using letters that are legible or of clear type no less than twelve-point in size. It should be signed, initialed, and dated by the principal or by another person in the principal’s name, under the principal’s direction, in the presence of the principal but not designated as an agent or successor agent. The signature must be duly notarized and acknowledged, and it must be witnessed by two persons who are not named in the instrument as agents or permissible recipients of gifts.
A Time to Reevaluate
Given these recent changes, it’s essential for New Yorkers and those holding New York POAs to review and, if necessary, update their documents with a licensed attorney. These adjustments aim to make POAs more accessible and effective, ensuring that your financial affairs are in safe hands when you need it most. Don’t wait until a crisis occurs to address your financial and estate planning. Embrace the changes in the law and take the necessary steps to secure your financial future and peace of mind.
The ever-evolving landscape of financial and estate planning, the Power of Attorney stands as a reliable shield, safeguarding your interests and financial well-being. Be proactive, be informed, and empower yourself with the knowledge and tools you need to protect your financial future. Your peace of mind depends on it.
Author: Elise Mahover
DISCLAIMER: Please note, this post is not legal advice, nor does reading anything I write or communicating with me on or through website form an attorney/client relationship between us. Information provided for educational purposes only. Please consult a licensed attorney in your jurisdiction for legal advice.