On December 15, Governor Cuomo signed an amendment to New York’s power of attorney law (General Obligations Law Article 5, Title 15) that will make the power of attorney form simpler and easier to correctly execute. A power of attorney allows a competent adult (the “principal”) to appoint one or more individuals as his or her agent for financial and other matters. It is commonly included as a part of a basic estate plan to allow the principal to select the individuals who will assist with the management of his or her affairs when the principal either is not able or does not wish to do so, whether on a temporary basis or permanently.
The current law includes a multi-page power of attorney form that must be signed and initialed without even minor deviation from the form included in the statute to be valid. Additionally, the current statutory form restricts an appointed agent’s authority to make gifts of the principal’s assets over $500 per year, even when doing so would be in the principal’s best interest (typically for asset protection purposes). To grant gifting authority beyond $500, the current law requires the signature of a separate “Statutory Gift Rider” to permit the agent to make more significant gifts or retitle assets. The Rider must be notarized and its execution witnessed by two independent witnesses. All of these requirements make it very easy for a power of attorney to be found defective, especially when an attorney did not prepare and supervise execution of the documents. These invalidating technical defects can create significant difficulties, particularly when a principal has lost capacity in the time after signing.
The modifications to the law aim to address the common problems and concerns posed by the form that has been in effect since 2009. The exact language of the new law is not yet released, as the Governor required several changes to the bill in order to sign it. According to his approval memo, these include requiring two disinterested witnesses to sign the power of attorney to ensure that the elderly and disabled population is protected from fraud and abuse, exempting Department of Health agencies from certain timeframes set forth in the bill, and making other “technical changes” to the form. The amendments included in the approved bill are summarized as follows.
First, the requirement that the power of attorney form include the exact wording of the statutory form is changed to requiring that a power of attorney form “substantially conform” to that wording. The law goes on to explain that a form will be valid notwithstanding an “insignificant mistake in wording, spelling, punctuation or formatting, or the use of bold or italic type” or the use of “language that is essentially the same as but is not identical to, the statutory form.” Further, rather than reprinting the form in full, the law authorizes irrelevant sections to be omitted and marked “intentionally omitted” rather than printed in full.
With respect to the restrictions on gifting, the general authority for an agent to continue the principal’s customary gifting practice is increased from $500 to $5,000 per year. In order to authorize gifting beyond this threshold, the desired level of authority is to be included in the “Modifications” section of the power of attorney form, rather than in a separate rider document. This requirement strikes a balance between making the principal aware of the significance of the authority that being given to the agent by stating it as a modification rather than a default provision, while eliminating the cumbersome addition of a separate rider to the form document.
The new law also provides more specific protections for third parties who rely on a power of attorney that appears valid on its face and for which they have no actual knowledge of its invalidity or termination. It requires those third parties to either honor or reject a statutory power of attorney form within ten business days after it is presented to them. If it is rejected, they must provide a written explanation for the rejection. If a principal or agent brings a special proceeding to compel a third party to honor a power of attorney because it has been improperly refused or rejected, the law now permits the court to award damages, including reasonable attorneys’ fees and costs, if it finds that the third party acted unreasonably in rejecting the power of attorney. These changes should help ensure that properly executed powers of attorney are promptly accepted by third parties so that the principal’s intended grant of authority is honored.
Finally, the law allows for an independent third party to sign the power of attorney form on the principal’s behalf, at the principal’s direction and in the principal’s presence. (The party signing on behalf of the principal cannot be nominated agent or successor agent on the form.) This creates greater access for principals who are unable to sign on their own.
All in all, these changes should go a long way toward making our NY statutory power of attorney form more efficient, both in its language and its execution and eventual use. The changes take effect 180 days after being signed into law. Any power of attorney form that was correctly executed under the current (or a former) version of the law remains valid.