POWER OF ATTORNEY
1. A power of attorney is a document by which one person gives another person the power to act for him or her. A power of attorney may be drafted broadly or narrowly.
2. A power of attorney may be effective on signing or it may become effective only when some particular event occurs or condition is satisfied. In the latter case, the power is sometimes called a "springing power of attorney." For instance, a person (the "principal") may give certain powers to his or her agent, but only if and when two doctors certify in writing that the principal is incapable of handling his or her financial affairs.
3. The general rule is that a power of attorney is automatically revoked when the principal becomes incapacitated. In order to avoid this result, it is necessary to make a power of attorney "durable." To do so, the power must contain a statement that the power of attorney survives the incompetency of the principal.
4. New York State has a form called a New York general short form durable power of attorney. See New York General Obligations Law Section 5-1501. This form has boxes that when initialed authorize the agent to exercise certain powers. By initialing a particular box, the principal is incorporating by reference the extensive description of those power set forth in detail in the New York General Obligations Law. This is why that document is called a "short form."
5. The statutory form of power of attorney does not allow the agent to make gifts other than, if the agent so authorizes, annual gifting which is gift tax exempt under federal law (Internal Revenue Code Section 2503(b)) made to certain family members.
6. Sometimes a power of attorney is carefully drafted to allow the agent to use the power to do certain long-term asset protection planning.
7. Powers of attorney can be, and too often are, misused. The choice of agent, conditions of validity and restriction on powers must be carefully planned.
1. Introduction. A power of attorney can give extraordinary power to the appointed agent who could use that power to completely alter the principal's estate plan. This can include power to transfer assets that would otherwise pass by will as well as those that usually pass outside a will, such as joint or ITF bank accounts, annuities, life insurance and retirement benefits. Very often a principal grants these sweeping powers to the agent without fully recognizing their scope, especially in the case where the principal forgoes the advice of legal counsel. Most often, the power of attorney is presently effective. However, the power of attorney may be made to be effective only on the occurrence of some specified event, such as the principal's incapacity. This is sometimes called a "springing" power of attorney. A durable power of attorney is effective even after the incompetency of the principal. The agent has the power to act without notifying the principal. Although the power of attorney has generally proven to be a simple and effective tool in connection with the management of a person's financial affairs, it was determined that a number of persistent issues needed to be addressed, including a description of the agent's fiduciary obligations and accountability, the manner in which the agent should sign documents where a signature is required, the limits of the agent's authority to make gifts to third parties and to himself or herself, the manner in which the principal can revoke the document, the circumstances under which a third party may refuse to accept a power of attorney, and privacy rules relating to medical records.
2. General Provisions. Although powers of attorney properly executed prior to September 1, 2009, will continue to be effective, a power of attorney executed after that date must be signed by both the principal and the agent or agents and their signatures must be acknowledged as required by law.
3. Major Gifts and Other Property Transfers. The authority to make major gifts and other asset transfers must be set out in a major gifts rider, which contains the signature of the principal duly notarized and which is witnessed by two persons who are not named in the instrument as permissible recipients of gifts or other transfers. The detailed execution requirements are designed to inform the principal of the gravity of granting to the agent this type of authority. An agent acting pursuant to authority granted in a major gifts rider must act in accordance with the instructions of the principal or, in the absence of such instructions, in the principal's best interests.
4. HIPAA Medical Records Privacy. The Health Insurance Portability and Accountability Act (HIPAA) created national standards limiting access to an individual's medical and billing records. The revised power of attorney grants the agent power with respect to health care billing and payment matters and medical records, reports and statements, so that an agent can examine, contest, and pay medical bills of the principal, without fear that the HIPAA Privacy Rule would prevent the agent's access to the records. However, the agent does not have the power to make medical decisions for the principal. Only a health care proxies will grant that power.
5.1. Notice to Agent. A notice to the agent is added explaining the agent's role, the agent's fiduciary obligations and the legal limitations on the agent's authority.
5.2. Signing on Behalf of Principal. In transactions on behalf of the principal, the agent's legal relationship to the principal must be disclosed where a signature is required. The recommended form is "(name of agent) as agent for (name of principal)" or "(name of principal) by (name of agent), as agent." However, any similar written disclosure of the principal and agent relationship will suffice.
5.3. Compensation. An agent is entitled to reimbursement for reasonable expenses incurred in connection with the performance of the agent's responsibilities. The principal may provide in the power of attorney that the agent receive reasonable compensation. In the absence of such a provision, the agent is not entitled to compensation.
5.4. Actions after Incapacity of Principal. A "monitor" is a person appointed in the power of attorney who has the authority to request, receive, and seek to compel the agent to provide a record of all receipts, disbursements, and transactions entered into by the agent on behalf of the principal. Within 15 days of a written request by the monitor, the agent must make available to the monitor the agent's record of all receipts, disbursements, and transactions entered into by the agent on behalf of the principal.
6. Revocation. A principal may revoke a power of attorney (a) in accordance with the terms of the power of attorney, or (b) by delivering a written, signed and dated revocation of the power of attorney to the agent and to any third party that the principal has reason to believe has received, retained, or acted upon the power of attorney.
7. Agent's Standard of Care. In dealing with property of the principal, an agent shall observe the standard of care that would be observed by a prudent person dealing with property of another. An agent acting under a power of attorney has a fiduciary duty to the principal. The agent is subject to liability for conduct and omission which violate the fiduciary duty. The agent's fiduciary duty includes the following obligations:
(a) to act according to any instructions from the principal, or, where there are no instructions, in the best interest of the principal, and to avoid conflicts of interest;
(b) to keep the principal's property separate and distinct from any other property owned or controlled by the agent;
(c) to keep a record of all receipts, disbursements, and transactions entered into by the agent on behalf of the principal; and
(d) to disclose the agent's identity as agent whenever the agent acts for the principal.
8. Third Parties. Third parties have the ability to refuse to accept powers of attorney based on reasonable cause. A reasonable refusal includes, but is not limited to:
(a) the refusal by the agent to provide an original power of attorney or a copy certified by an attorney or by a court or other governmental entity;
(b) the third party's good faith referral of the principal and the agent to the local adult protective services unit;
(c) actual knowledge of a report having been made by any person to the local adult protective services unity alleging physical or financial abuse, neglect, exploitation or abandonment or the principal by the agent;
(d) actual knowledge of the principal's death or a reasonable basis for believing the principal has died;
(e) actual knowledge of the incapacity of the principal or a reasonable basis for believing that the principal is incapacitated where the power of attorney tendered is a non durable power of attorney;
(f) actual knowledge or a reasonable basis for believing that the power of attorney was procured through fraud, duress or undue influence; or
(h) actual notice of the termination or revocation of the power of attorney.
9.1. Gifts to "529" Plans. An agent is allowed to make gifts to a "529" account, up to the annual gift tax exclusion amount.
9.2. Gift Splitting. The agent is authorized to make gifts from the principal's assets to a defined list of relatives, up to twice the amount of the annual gift tax exclusions, with the consent of the principal's spouse.
9.3. Certification. An attorney can certify a copy of a power of attorney instead of having to record it to get certified copies from the county clerk.
9.4. Full Force and Effect Affidavit. Financial institutions may demand an affidavit that the power of attorney is in full force and effect if they are asked to accept the power of attorney.
9.5. Law Enforcement. Investigative agencies and law enforcement officials can request a copy of the power of attorney and the records of the agent and bring a special proceeding to compel disclosure in the event of the agent's failure to comply.