Don’t wait until the last minute to finish this document. In an emergency, this document is powerful even if you have a solid will and/or family trust.
The power of attorney (“POA”) should be part of every adult’s financial and estate planning. Unless an individual’s assets are jointly owned or held by a trust, no one can handle his/her financial affairs in the event of incapacity without a power of attorney. It would take a lengthy and expensive court process to appoint a guardian.
A POA is not just a tool to be used later in life. Every parent of a college-bound student should consider having that young adult execute a POA so they can handle financial matters, or even gain access to their child’s residential quarters, if needed.
Earlier this year, the New York State Legislature made significant changes to the New York power of attorney law, which went into effect on June 13, 2021. Because of these changes, it is important for New Yorkers and others with New York POAs to review them at this time and to consider updating them.
An overview of the changes
Title 15 of Article 5 of New York’s General Obligations Law establishes a “statutory short form power of attorney” by which an individual, the Principal, can designate an Agent to act on the Principal’s behalf in matters of personal and financial nature. Even though the POA form may consist of several pages, especially when permitted modifications are added, it is still called Statutory Short Form, so that the language conferring authority with respect to each power listed on the “short form” is construed to incorporate a full description and extent of the agent’s authorized transactions set forth in the statute. Similar statutes exist in many other states.
Powers of attorney are frequently refused by financial institutions and other third parties. Changes in the New York power of attorney law that went into effect in June simplify the form and reduce the likelihood of financial institutions refusing to honor validly executed POAs.
In 2009, a POA form that deviated from the statutory language would be deemed invalid. The statutory form also limited the agent’s ability to make gifts by allowing only a maximum aggregate annual gift of $500, unless the principal executed a separate Statutory Gift Rider (“SGR”). Additionally, the old law provided no sanctions or punitive remedies for third parties refusing to honor a valid POA.
As a result of the new law, the following significant changes have been made:
- Compliance with statutory requirements. According to the new law, a POA form must “substantially conform” to the language provided in the General Obligations Law *5-1513, but is not required to be identical to the POA form in the General Obligations Law §5-1513. POA forms may be valid even if they contain slight errors in spelling, punctuation, formatting, or type slightly different from the statutory POA form language. The following two warnings, which are in the NY GOL *5-1513, cannot be omitted from the POA: the “Important Information for the Agent” clause and the “Caution to the Principal” clause.
- Legislative gift riders will be eliminated. In order for the agent to make gifts in excess of $500 per year, the principal previously had to execute a separate SGR, which required two witnesses to witness the principal’s signature and an acknowledgment from a notary. By amending the law, a principal can authorize the agent to make gifts up to $5,000 per year, and additionally, the principal can modify the standard POA form to authorize the agent to make gifts exceeding $5,000 per year, and to authorize the agent to make gifts to himself or herself or to make other gift transactions and changes to interests in the principal’s property without the need for a separate SGR.
- Penalties for not accepting a valid POA. In the past, financial institutions have refused to accept a valid, properly executed POA or only recognized their own form. Previously, there weren’t any penalties for unreasonable refusal to honor POA. Under the new law, if a third party is found to have acted unreasonably in refusing a POA, the court can award damages, including reasonable attorneys’ fees and costs. A POA can be rejected under certain circumstances, and there’s a timeline for when it can be rejected. POA recipients have 10 days to accept or reject the POA, or to ask for an affidavit from the agent or an opinion of counsel from the principal, and must then accept or reject the POA in writing within seven days of receiving the affidavit or opinion of counsel.
- Third parties acting in good faith are protected by the Safe Harbor. By law, recipients of a POA are protected if they act in good faith when accepting the POA, even if the POA is later deemed invalid. The recipient is shielded from liability if the following conditions are met: (a) the POA must have the principal’s acknowledged signature verified by a notary public or another authorized to accept acknowledgments; and (b) the recipient must not know that the principal’s signature is forged, the POA is invalid, or that the agent is abusing his/her/its authority.
- Requirement for execution. In New York, a statutory power of attorney, or a non-statutory power of attorney, executed by a principal must: (a) be typed or printed in clear type no smaller than 12 points; and (b) be signed, initialed, and dated by the principal or by another person other than the principal’s agent or successor agent, in the principal’s presence and under the principal’s direction. In either case, the signature of the person signing must be duly notarized and acknowledged, and must be witnessed by two persons who are not named in the instrument as agents or as permissible recipients of gifts, principal. The person who takes the acknowledgment may also serve as one of the witnesses.
Though third parties may more readily accept the new POA form, powers of attorney and statutory gift riders properly executed previously under the law in effect at the time of execution will remain valid.