By Robert Brannum
On September 1 revisions to New York State’s General Obligations Law, specifically to Chapter 644 governing the use of powers of attorney (POA), will go into effect.
In the eyes of many industry observers, the updated law represents sweeping changes to the current POA form, impacting a wide range of standards, from how an agent achieves POA authority, to increased levels of POA fiduciary responsibility regarding recordkeeping and making gifts on behalf of the principal.
While those studying this legislation agree that it provides greater regulatory oversight, not all agree that the new law is reasonable, or even necessary.
Protection for the Vulnerable
The changes to the existing POA regulations were made in order to reduce ambiguities regarding the proper authority and use of power of attorney, while keeping the laws flexible enough to enable an agent to reasonably carry out the principal’s intentions. The updated legislation was advocated by many organizations that sought to reduce the financial abuse of the elderly and other vulnerable constituencies, and was targeted to reduce so-called “Durable Power of Attorney Abuse.”
Allegations of POA abuse often arise when family members litigate an estate. The criminal trial over Brooke Astor’s estate, worth nearly $200 million, involves allegations of abuse of the POA given to her son, Anthony Marshall.
Another case, more pertinently impacting this legislation, goes back to 2006 and to a reversal by the Court of Appeals of two lower court decisions in The Matter of George J. Ferrara. In Ferrara, an attorney (who was Ferrara’s nephew) was given the unlimited power to make gifts, and transferred to himself approximately $820,000 over a three-week period. The Court of Appeals reversed the lower courts’ dismissals, holding that an attorney was a fiduciary and must act in the principal’s best interest. The new POA law appears to codify the Ferrara decision and clarify the relationships and obligations between the parties.
“I think it was necessary to revise the power of attorney law to help avoid abuse,” said Saul Elnadav, an attorney with Vishnick McGovern Milizio in Lake Success. However, he says, the changes don’t directly address abuses, but address the execution and acceptance of the power of attorney form by providing more information and clarifying the principal-agent relationship. “Actual abuses will no doubt continue to occur, and they will continue to be addressed the way they are now – through civil and criminal actions for fraud or conversion.”
Impact of the New Legislation
The amendments to the POA statutes affect many of the authorities of the agent, and impact the relationships between agents and principals. The revisions touch upon many areas of the statutory form of the power of attorney, and some significant changes include:
The manner in which an agent is now granted POA authority. Both the principal and the agent must now execute a POA application, ensuring that the agent officially acknowledges the assumption of legal responsibility. Both signatures must be notarized.
A most significant change: new provisions must be met to enable a POA to make gifts on behalf of the principal. Gifts may no longer be made under the umbrella of the existing blanket POA, and require a separate rider with notices and execution requirements. This second form, named the “Statutory Major Gift Rider,” must be executed for all major gifts, defined as gifts larger than $500, and the rider must have two witnesses.
Health care billing and payment matters: The new law adds direct language to the statutes to enable an agent to review medical related materials, should the client so choose, in accordance to HIPAA standards.
New client protections are allowed, particularly that a principal may appoint one or more monitors who have the authority to review all transactions made by the agent on behalf of the principal.
The new statute also provides prudent person standard of care, which includes agent responsibilities for record keeping, along with requirements that records and documentation be made available within 15 days of a valid written request.
Powers of attorney created before September 1 remain valid and they do not need to be re-executed. The key statutory changes related to fiduciary responsibilities and record keeping do apply to all POA, including those granted prior to September 1.
The Impact On Banks
Industry experts seem to agree on one key point: there are few consequences for a bank that makes a mistake, either by incorrectly honoring or not honoring, a power of attorney. “There’s no major change in terms of a bank’s liability for mistakenly honoring a power of attorney,” argues Elnadav. “New York State law previously shielded banks from liability for acting on a properly executed POA unless the bank actually received written notice of the revocation or termination of the power of attorney. The new law provides that the bank will not incur liability for accepting the power of attorney. I do not think the new law is any more burdensome on banks.” David Goldfarb, a lawyer with Goldfarb Abrandt Salzman & Kutzin in New York City, agrees: “Banks will continue to be protected if they rely in good faith on a power of attorney. The new law will solve one problem for the banks – they will now have the agent’s signature on a form.”
But other industry participants argue that the law is overkill. They maintain that POA has become so complicated that it should only be executed under the supervision of an attorney. “I think it was an attempt to kill a fly with a baseball bat,” states Goldfarb. “We have encountered very few problems of abuse under the current law. We have all heard a few stories. But the new law will put a burden on anyone who wants to create a power of attorney, especially if they want to give their agent enhanced gifting authority.”
Case in point: the “Statutory Major Gift Rider” needed for that gifting authority, is likely to be six pages or more. Technical requirements appear to be numerous, leading some to believe that the risk is high of making an error leading to an invalid POA. Other observers say it’s a case of spending time to understand the changes. “I think it is an issue of familiarization,” says Elnadav. “Unless a major gifts rider is included – which is essentially appropriate for advanced estate planning, and should be done with an attorney – I don’t think it’s any more or less difficult than the old form. If anything, the information contained in the form is more direct.” But the new law doesn’t go into effect until September 1, so right now it’s a matter of opinion, he says.
Robert Brannum is a freelance writer based in Boston with special expertise in the finance industry.