On June 13, 2021, a long awaited update to New York’s law on Powers of Attorney (“POAs”) took effect with the primary goal(s) of simplification, streamlining the execution process and increasing POA acceptance by third parties, among others. The changes to General Obligations Law §§ 5-1501, et seq., the statutes governing POAs, seek to simplify the “Statutory Short Form Power of Attorney” to make it easier to understand and execute, enhance protections for the principal executing the POA granting agency authority to an agent by requiring two disinterested witnesses to the principal’s signature, better guide third parties in deciding whether to accept or reject a proffered POA including additional assurances that may be relied upon, and provide new penalties if banks or financial institutions unreasonably reject a valid POA.
Background
A power of attorney creates an agency relationship between the principal and an agent and permits an agent to act on a principal’s behalf in certain situations. A POA that is general in its scope allows an agent to take broad and comprehensive action in multiple specific areas such as gifting, purchasing or selling real or personal property, interacting with financial institutions, dealing with business interests, paying bills, and making other important, non-medical, decisions on the principal’s behalf. In the context of estate planning, POAs are invaluable because a well-drafted POA will empower the agent to, among other things, rearrange and transfer the principal’s assets to pursue Medicaid (or other “means tested” government benefits) eligibility or engage in tax planning.
In New York, a principal may execute either a Statutory Short Form Power of Attorney or a non-statutory short form power of attorney. Because Statutory Short Forms follow the language of the form provided in the statute itself and incorporate all of the statute’s relevant provisions, a statutory short form is recommended.
The Updated POA Law Simplifies the Language Requirements for POAs
The updated POA law simplifies and relaxes previously rigid language requirements. Under the new rules, a POA will be considered a Statutory Short Form if it “substantially conforms” to the statutory form. This is a marked change from the previous rules, which would invalidate a POA for even slight deviations. The result is a more flexible document that is more readable and less likely to be rejected for nonconformance with the statutory language.
Gifting is Now Addressed within the POA’s Modification Section
The Legislature simplified the gifting process by requiring gifting powers to be included in the Modifications section of the POA rather than in a separate Statutory Gifts Rider. The Statutory Gifts Rider was a separate form the principal was required to execute for their agent to make gifts over $500 annually on their behalf. Unless otherwise specified in the Modifications section, the updated POA statute automatically permits an agent to make up to $5,000 of customary, annual gifts to individuals and charities on the principal’s behalf. This makes executing a POA simpler, partly because the principal no longer needs to execute two separate documents, and partly because gifting powers important to estate and long-term care planning may be more easily described as a core part of the powers granted in a POA.
Health Care Providers Must Grant Agents Access to Protected Medical Records
To further aid agents’ ability to make financial transactions on the principal’s behalf, agents’ authority with regard to the financial aspects of the principal’s health care matters was expanded. Previously, it was unclear which medical records agents could access with a POA. The updated law clarifies that health care providers must give agents access to protected medical records about benefit entitlements and medical billing, two areas in which agents are frequently involved. Agents may thus interact with health care providers with fuller knowledge of the kinds of records they can access and decisions they can make. Importantly, however, agents still may not make medical decisions on the principal’s behalf: the principal still must execute a separate health care proxy.
The Updated POA Law Clarifies Acceptance and Rejection of POAs by Third Parties
The updated law for POAs provides corresponding updates on how third parties must go about accepting or rejecting POAs, enabling agents and principals to better know when their POA will be honored by a third party, such as a bank. If a third party has doubts about a POA’s validity, they may request a certification from the agent of any factual matter concerning the principal or an opinion of counsel stating the POA is legally valid. If a POA appears valid, a new safe harbor provision protects the third party from suit when they rely on it in good faith. Taken together, these new provisions encourage acceptance of valid POAs, providing greater certainty to agents and principals.
The changes also provide disincentives to third parties who might otherwise reject a POA out of hand. If a third party refuses a valid POA after an agent provides a sworn statement or an attorney’s opinion that the POA is valid, the agent may file suit against that third party to obtain enforcement of the POA. If the third party acted unreasonably in rejecting it, the court may award damages, including attorneys’ fees.
Conclusion
The updated POA law allows for a more user-friendly POA by streamlining the execution process and eliminating the Statutory Gifts Rider. The changes have also increased ease of understanding, simplified various areas of the Statutory Short Form, and made the acceptance and rejection procedures clearer. As a result, while existing POAs executed under the old rules are still valid, principals should consider updating them with a document executed under the updated law.
