New York Law Journal
September 22, 2009
New York's new power of attorney law,1 which took effect on Sept. 1, 2009, has made extensive changes to New York's power of attorney law. Some of these changes to the law promise to be beneficial. Other changes promise to be, at best, problematic.
Some of these problematic changes to the law will be addressed by a proposed technical corrections bill, which has been passed by the New York State Assembly and is currently pending a vote in the New York State Senate, if these corrections are enacted.2 However, other issues will not be addressed, including the new law's relatively complex requirements for a principal to grant powers to an agent to make gifts and transfer property. These complex requirements may protect some principals from having their assets misused, but they also will make it more difficult for all principals to execute a valid power of attorney.
The new law recommends, in a number of its provisions, that a principal should have an attorney supervise the execution of a power of attorney, and particularly, the new Statutory Major Gifts Rider (SMGR). However, the new law's requirements are so complex that they virtually require that a principal have an attorney, or risk executing a power of attorney which is invalid or has unintended results. Additionally, this quality of the law itself may have unforeseen results (e.g., cause more powers of attorney to be found invalid or ineffective for their purposes; make powers of attorney a less useful tool, and discourage principals from using them; and/or lead to increased litigation), because not all principals have the means, disposition, or awareness to obtain legal counsel.
The Proposals
The proposed technical corrections bill includes corrections of minor drafting errors, added clarification that standards for third parties' "reasonable" acceptance applies only to the statutory short form power of attorney, and a provision for the Law Revision Commission3 to conduct a follow-up study of the new law's implementation and use. The most significant of the proposed technical corrections are the following, however.
1. Elimination of two problematic "default" provisions:
a. Default revocation of all of a principal's existing power(s) of attorney, whenever a principal executes a new power of attorney, unless the principal has affirmatively preserved such a prior power of attorney in the new power of attorney instrument. The proposed technical correction would eliminate this provision, and substitute a provision that states that a prior power of attorney will not be revoked unless a principal has given written notice to the agent of its revocation.4
b. Default revocation of a prior, existing agent's authority to act separately from a new agent appointed in a new power of attorney who has the same authority, unless the principal has affirmatively stated in the new power of attorney's "Modifications" section that the prior agent may act separately. The proposed technical correction would eliminate this requirement that a principal must indicate, in the new power of attorney, whether the agent appointed in the prior power of attorney is to act "together or separately"5 with a new agent, or the prior agent will be required to act jointly with the new agent by default.6
The current law's first default provision, if it is not "corrected" as proposed, would allow a new limited power of attorney (e.g., executed specifically for a real estate transaction) to revoke a principal's broad general durable power of attorney. Additionally, it would allow any new power of attorney to revoke power(s) of attorney that a principal is required to preserve by contract (e.g., certain powers of attorney "coupled with an interest," such as those given to condominium and cooperative apartment boards).
The current law's second default provision, if it is not "corrected" as proposed, could change existing independent agents' authority to act separately to require joint action by the agents simply by operation of law and with no notice to the agents, which may be contrary to a principal's intent. Therefore, both of the proposed technical corrections to these default provisions are recommended, as described above, because they would be more likely than the current law's provisions to produce a result consistent with a principal's intent, and less likely to produce a result inconsistent with a principal's intent due to mere mistake or oversight.
2. Correction of the law's apparently ineffective "exception" for use of other forms of power of attorney by business entities.
Many business entities commonly use limited powers of attorney for limited purposes (e.g., real estate transactions). These limited powers of attorney generally would not meet the new law's requirements. The new law provides an exception for the use of such other forms by an "individual" not defined as a "person" under the law. However, because all powers of attorney are necessarily executed and used by a "person," even when on a business entity's behalf, the language of this exception does not appear to be effective for its purpose. The proposed technical correction would eliminate the current law's problematic reference to an individual who is not a person, and substitute a "principal who is not an individual."7 This technical correction is recommended, because it would make the exception effective for its purpose.
3. Deletion of the law's requirements that a valid, written revocation of a power of attorney must be signed and dated, and delivered to a third party that the principal has reason to believe has received, retained or acted upon, the power of attorney.8
This is a troubling proposed technical correction. It is unclear why the Legislature would want an unsigned, undated, written revocation of a power of attorney, only possessed by an agent, to be generally effective. It is highly unlikely that a competent principal would be capable of executing a valid "written" revocation, but not be capable and willing to sign and date it (and if a principal is incapacitated, his or her written revocation should not be honored. This is notwithstanding the current law's provision that an incapacitated principal's revocation of a power of attorney will be honored, unless the principal has been declared incapacitated pursuant to Article 81 of the Mental Hygiene Law).9 Additionally, this proposed technical correction would make it easier for a fraudulent revocation to be created and used by an agent, or others, as a defense against legal liability for failing to act properly.
4. Reduction of the maximum amount of minor "customary" gifts that an agent is allowed to continue to make under the "personal and family maintenance power" to a maximum aggregate total of $500 per year,10 from the current maximum of $500 per year, per donee.
This proposed technical correction is not recommended, because many principals' "customary" annual gifts to individuals and charities already may exceed the proposed new $500 maximum for such continued gifts. If this proposed technical correction is enacted, such a principal would no longer be capable of granting his or her agent the power to continue to make the principal's previously "customary" gifts by simply initialing the "personal and family maintenance" power, and would be virtually required to meet the new statute's requirements for grants of gifting and property transfer powers (i.e., two disinterested witnesses would be required for any such grant, and the principal would be required to execute the new SMGR whenever he or she uses the new statutory short form power of attorney to make such a grant).
These requirements would generally require that a principal retain an attorney to properly execute a power of attorney that correctly effectuates his or her intent. This expense would be onerous, and possibly exceed the cost-benefits to be gained, for many principals of average means and whose annual gifts are relatively minor. If the law makes execution of valid powers of attorney more complex in this way, and particularly, increases the instances in which average individuals would be required to execute a SMGR (which the law states should be supervised by an attorney), it could actually serve to discourage many principals from executing powers of attorney. This would defeat at least one public policy goal of the law, which is to encourage more members of the public to use powers of attorney.
Issues Not Addressed
The proposed technical corrections bill does not address the following issues with the new law, however, which should be corrected.
• The misleading information contained in the "Caution to the Principal" notice and new §5-1511 of the law that a principal may revoke a power at will, if of sound mind. This is not true of contractual powers of attorney.
• The requirement that any valid power of attorney contain the "exact" statutory language of the mandatory notices to the principal and agent. This requirement may result in otherwise valid powers of attorney being declared invalid for non-substantive deviations from this language, when a requirement of "substantial compliance" would probably be adequate.11
• The absence of provisions for a monitor's reimbursement for expenses, or for the monitor to receive notification that he or she has been appointed a monitor. These omissions will probably diminish the effectiveness of the new monitor role.
• The explicit authorization of special proceedings as the "exclusive remedy" for the unreasonable failure of a third party to honor a statutory short form power of attorney. This provision, and the restriction of such special proceedings to orders of injunctive relief to compel acceptance of a power of attorney, may limit a principal's access to the court system under certain circumstances.
• The inconsistent replacement of "arbitration," as used in the prior law, with "alternative dispute resolution." This is a less significant "issue," but one that should be corrected, nonetheless. The Legislature has substituted "alternative dispute resolution" for "arbitration" in two powers, "Benefits from governmental or civil or military service" and "Major gifts [et al.]." However, it has not made this substitution in the remaining powers that still refer to "arbitration."
Important to Remember
1. New York's new power of attorney law has complex requirements for making gifts and transfers of property, important default provisions, and retroactive provisions which will affect existing powers of attorney.12
2. Principals are not required to use the statutory short form power of attorney, and should carefully consider the benefits and drawbacks of using this form. The benefits of using the statutory short form include its statutory protections (most significantly, third parties' required "reasonable" acceptance of the form), and its standard, approved language.
The drawbacks of using the statutory short form may include its requirement for concurrent execution of a SMGR, when a principal wishes to grant an agent meaningful powers to gift and transfer property. This form is generally considered complex, and the requirement that it be executed concurrently with the statutory short form power of attorney would appear to require that new versions of both forms would need to be executed any time revisions to either form are needed. In contrast, a non-statutory power of attorney would allow a principal to grant an agent all powers in the power of attorney itself, without the need to execute a second, concurrent form. However, a non-statutory power of attorney may also contain non-standard language which could lead to unanticipated interpretations, or findings of invalidity.
3. A valid power of attorney executed prior to the effective date of the new law will remain valid under, and receive certain retroactive benefits of, the new law. Therefore, in some cases, it may be prudent for certain principals who already have an existing, valid power of attorney, not to execute a new power of attorney, but to rely on the power of attorney they already have.
4. Additionally, powers of attorney valid in other states will be honored in New York. Therefore, in some cases, it may be prudent for certain principals to execute a power of attorney in another state that is valid under the laws of that state. However, the potential for conflict of laws issues to arise should be noted, and prevented by careful drafting.
5. Particularly because of the new law's complex requirements for granting powers to make gifts and transfer property, a revocable trust may be a preferable alternative to a new power of attorney. Depending on a client's needs, executing a revocable lifetime trust could provide a principal with more flexibility and fewer limitations than a new power of attorney under the new law. However, such trusts present their own complexities and issues, including those associated with the transfer of assets to the trust.
Conclusion
New York's new power of attorney law introduces many beneficial new provisions to the law. However, the complexities of the new power of attorney law may serve to discourage principals' use of the statutory short form because of the SMGR requirement, and/or powers of attorney in general, and may lead to principals executing powers of attorney which are invalid, or have unintended consequences. Clearly, the new power of attorney law is a work in progress, which must be watched closely.
Sanford J. Schlesinger is a founding partner of Schlesinger Gannon & Lazetera and a fellow of the American College of Trust and Estate Counsel. W. Gyongyi Gulyas is an associate at the firm.
Endnotes:
1. Chapter 644 of the Laws of 2008, signed into law on Jan. 27, 2009, amending the New York General Obligations Law ("N.Y. Gen. Oblig. Law") Article 5, Title 15.
2. Legislative Bill No. A8392, passed by the New York State Assembly on June 15, 2009, and Legislative Bill No. S5910, in the New York State Senate.
3. The Law Revision Commission is a long-standing agency which was created by the state Legislature to review and recommend reforms in the law. The new power of attorney law largely resulted from an approximately eight-year study of the current law by the commission (which includes members of the state Legislature), and its recommendations.
4. Legislative Bill Nos. A8392 and S5910, §2, amending N.Y. Gen. Oblig. Law §5-1511(6), and §3, amending N.Y. Gen. Oblig. Law §5-1513(1)(e).
5. Legislative Bill Nos. A8392 and S5910, §3, amending N.Y. Gen. Oblig. Law §5-1513(1)(e).
6. N.Y. Gen. Oblig. Law §5-1508.
7. Legislative Bill Nos. A8392 and S5910, §14, amending N.Y. Gen. Oblig. Law §5-1501B(4).
8. Legislative Bill Nos. A8392 and S5910, §1, amending N.Y. Gen. Oblig. Law §5-1511(3)(b), §2, amending N.Y. Gen. Oblig. Law §5-1511(6), and §3, amending N.Y. Gen. Oblig. Law §5-1513(1)(e).
9. N.Y. Gen. Oblig. Law §5-1511(3)(b)(1).
10. Legislative Bill Nos. A8392 and S5910, §5, amending N.Y. Gen. Oblig. Law §5-1513(1)(f)(2)(I), §6, amending N.Y. Gen. Oblig. Law §5-1513(1)(h), §7, amending N.Y. Gen. Oblig. Law §5-1514(10), and §8, amending N.Y. Gen. Oblig. Law §5-1502(I)(14).
11. Similar to "substantial" compliance in the Uniform Power of Attorney Act (2006) §301.
12. See the first part of this two-part article on Sept. 17, 2009, for a discussion of these provisions.
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