On September 1, 2009, the changes to § 644 of New York's General Obligations Law regarding powers of attorney went into effect. These changes impact not only the formalities of creating and executing a valid power of attorney in New York, but also the substance of the document.
The majority of the new law's provisions only affect powers of attorney that are executed on or after September 1, 2009. However, the changes regarding the fiduciary duties of agents apply to both new powers of attorney and those that were in force before the changes to the law became effective.
Previously, only the creator (or "principal") of the power of attorney was required to sign the document. Now, both the principal and the person designated as the agent must sign the power of attorney in order for it to be valid.
For the principal to give the agent the power to transfer property to others and make important changes in beneficiaries, trusts, joint accounts and other types of financial property, a separate document must be executed at the same time as the power of attorney. This separate document is a "statutory major gift rider" (SMGR). The SMGR must be executed in the same way as a will and requires the signature of the principal, agent and two witnesses.
Fiduciary Duties of the Agent
The changes also include memorializing the fiduciary duties of the agent to the principal in the statute, including the agent's legal obligation to perform his or her duties in the best interests of the principal. The agent's record-keeping duties also are specified, such as the duty to keep a detailed report of all the transactions entered into by the agent on the principal's behalf as well as copies of all of the receipts. The changes also create a presumption that the agent will not be paid for his or her services unless otherwise provided for in the power of attorney.
Third Parties Must Accept the Power of Attorney
Third parties, like banks and other financial institutions, can no longer refuse to accept a power of attorney because it has not been executed on one of their own forms, because of the amount of time since the document has been executed or some other excuse. Banks and other third parties also must accept a certified copy of the original power of attorney, as long as it is certified by an attorney.
Third parties may still refuse to honor a power of attorney for a reasonable cause, including:
- Questions about the validity of the document for reasons such as fraud, undue influence or the capacity of the principal to execute the power of attorney
- Questions about the principal's death
- Good faith referral by adult protective services
- Refusal to provide the third-party with the original power of attorney or a certified copy
To ensure that the agent acts in the best interests of the principal, the new law gives the principal the option of appointing someone as a monitor. The agent would be answerable to the monitor, who would be given the right to request and review the agent's transaction records and receipts.
By executing a new power of attorney, all prior powers of attorney are invalidated unless the power of attorney includes a clause stating otherwise. This could create potential problems and a technical correction has been introduced into the legislature to undo this change, but these corrections have not yet been approved.
Durable Power of Attorney
All newly executed powers of attorney are presumed to be durable powers of attorney. This means that the document is not invalidated if the principal later becomes incapacitated, unless specific language in the document provides otherwise.
The Impact of the New Law
The changes to New York's power of attorney laws are mostly positive, particularly the requirement that banks and other third parties must recognize legally valid powers of attorney.
However, some of the changes may have unintended consequences that the legislature did not fully consider when drafting the new law. For example, the requirement that both the principal and agent must sign the power of attorney in order for it to be enforceable could make it difficult for someone to execute one of these documents in emergency situations, particularly if the intended agent lives in another city, state or even overseas.
Additionally, the automatic revocation provision can make it onerous to create a new power of attorney. For example, if someone has already executed a power of attorney with a bank and then executes the new power of attorney, the first power of attorney with the bank is automatically revoked. The principal can include language in the second power of attorney to prevent this outcome, but it is important to note that the official short-form power of attorney does not currently include this language.
Lastly, although financial institutions must accept the new power of attorney form, if a bank wrongfully dishonors a power of attorney, the only remedy is to start a special proceeding in Court. In this proceeding, the Court only has the power to order the institution to accept the power of attorney — not to award damages including attorney's fees to those wronged by the institution.
Given the complexity of the changes to this law, it is important to work with an experienced attorney before executing a power of attorney. Depending on the purpose of the power of attorney, additional provisions may be needed to make the standard document effective. A lawyer experienced in preparing powers of attorney can ensure the document meets the new legal requirements under New York law as well as the principal's needs.
For more information on powers of attorney, contact a knowledgeable attorney today.