Changes to Power of Attorney Rules in New York
New changes to New York's General Obligations Law have significant consequences for individuals establishing powers of attorney in the state.

December 04, 2009 /24-7PressRelease/ -- Changes to Power of Attorney Rules in New York

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This past September, important changes took effect regarding powers of attorney under New York's General Obligations Law. The changes came on the heels of an eight year study conducted by the New York State Law Revision Commission, which concluded that the existing state power of attorney laws had serious gaps that needed to be filled.

Among other things, the changes elaborate the fiduciary duties of the agents, limit the agents' abilities to make gifts to third parties and outline the steps a principal must take to revoke a power of attorney.

Procedural Changes

The new laws provide a number of significant procedural changes.

Execution: The document does not come into effect until both the principal and agent have signed it. Previously, only the principal was required to sign the power of attorney for it to be effective.

Major gifts rider: If the principal wants to grant the agent the authority to transfer property and other assets, the principal must execute a separate "statutory major gift rider" (SMOR) with the power of attorney. SMORs also must be executed if the principal wants the agent to be able to make changes to other types of property, like trusts and joint accounts.

Automatic revocation: Under the new law, a power of attorney is automatically revoked at the time any new power of attorney is executed. Depending on the circumstances, a principal may wish to avoid this revocation by inserting a clause preserving previously executed powers of attorney.

Durable power of attorney: All powers of attorney executed after September 1, 2009 are considered durable powers of attorney unless otherwise provided for in the document. This means that the power of attorney does not terminate upon the principal's incapacitation.

The Agent's Fiduciary Duties

The statute now includes the agent's fiduciary duties. These duties include:
-Acting in accordance with the principal's instructions
-Acting in the best interests of the principal when specific instructions have not been provided
-Avoiding conflicts of interests
-Keeping the principal's property separate and distinct from the agent's property, unless it is jointly owned
-Not transferring the principal's property to him or herself, unless the principal gave the express authority to do so
-Keeping a record of all receipts, disbursements and other transactions regarding the principal's property and assets

The changes also allow the principal to select a monitor to ensure that the agent carries out his or her duties faithfully. The monitor has the right to request the agent's transaction records. Once a monitor has made a request for these records, the agent must turn them over within 15 days.

Additionally, agents will not be compensated unless the principal specifically provides in the power of attorney document that they shall be paid for their services. This provision was included to prevent agents from helping themselves to the principal's assets, especially in cases where the principal is incapacitated and unable to personally monitor the agent's actions.

Rejection of the Power of Attorney

The legislation also details when a third-party may reject a power of attorney. Previously there were no guidelines and many agents had problems with third parties rejecting powers of attorney on frivolous grounds. For example, some banks would reject powers of attorney if they had not been executed on their own forms.

Under the changes to the law, third parties may only refuse a power of attorney if they have reasonable cause to do so. Examples of reasonable cause include instances when the agent refuses to provide the third-party with an original or certified copy of the power of attorney or when the third-party has questions about the validity of the document because of a referral to adult protective services or the principal's death.

If the third-party has rejected the power of attorney on unreasonable grounds, the agent can seek a court order requiring the third-party to accept the document.

Conclusion

While the changes to New York's power of attorney laws go a long way towards clarifying the duties and responsibilities of agents and principals, they also may have some unintended consequences that can be burdensome for those wishing to create these documents.

For example, the automatic revocation provision may catch many unaware - especially if they are drafting the power of attorney without the assistance of a lawyer. Also, the principal and agent signature requirement may make it difficult to create a power of attorney on short notice or in an emergency situation.

Given the scope and importance of these changes, it is vital that anyone wishing to execute a power of attorney consult an experienced attorney first. The lawyer can help draft the document in accordance with the new laws and help ensure that the principal's goals are met by the document.

For more information, contact an attorney experienced estate planning attorney today.

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