Powers of Attorney - A Useful Tool3/10/2017 | By: David I. Faust, Esq. | GDB 2017 Spring Newsletter
People are living longer. As a result, it is increasingly common for elderly people to become unable or unwilling to manage their financial affairs.
Over time, the reluctance to delegate authority over one’s affairs may give way to the realization that such delegation is necessary. But you cannot wait too long to have a person make a Power of Attorney. It will not be valid if it is made at a time when the maker is already incompetent. Between the realization that a delegation of authority over one’s financial affairs is appropriate and the deterioration of capacity to the point when such a voluntary delegation of authority is no longer possible, there is a window of opportunity, in which a properly executed Durable Power of Attorney can be a useful and appropriate tool. This article addresses the most commonly used New York statutory short form power of attorney.
A Power of Attorney is a delegation or deputation of authority by the maker (“Principal”) to the holder (“Agent”) to manage some or all of the Principal’s affairs. It is not a surrender of that authority. The Principal can still act on his or her own, so long as he or she is competent to do so.
A Durable Power of Attorney is one which survives the incapacity or disability of the Principal – the person who granted the Power. In New York, the statutory form of Power of Attorney is presumed to be durable unless it expressly provides otherwise.
- A Power of Attorney does not generally authorize the Agent to make health care decisions. This authority or power must be in a separate form – a Health Care Proxy – with its own rules and requirements.
- A Power of Attorney can be general or limited. It can cover every right or power of the Principal that is delegable, or it can cover only specific matters.
- A Power of Attorney can be issued for a limited period of time (e.g., the duration of a trip) or a specific transaction (e.g. the sale of a house) and, if properly executed and notarized, will be effective only for that period or transaction.
- In New York, if the Principal wants to delegate the power to make gifts over $500 in the aggregate in any one year, he or she must execute a separate Gifts Rider.
- A Principal can appoint more than one Agent, but must then make clear if the Agents can act individually or must act by majority OR unanimously.
- Powers of Attorney generally give the Agent the right but not the duty to act.
- The Agent is a fiduciary. The fiduciary duty is owed to the Principal, not to family members, creditors or others.
- A Power of Attorney is valid until the Principal dies or revokes the Power – or the Agent resigns. An Agent may use the Power, and third parties can rely on the Agent’s use of the Power, until the Agent, or the third party, as the case may be, is notified of its revocation or of the death of the Principal. It is not unusual for an Agent who wants to act pursuant to a Power of Attorney to be asked to sign an affidavit confirming that the Power has not been revoked.
- The Statutory Forms do not explicitly revoke prior powers. This can cause a very real problem. Suppose a person gives a Power to a spouse. However, years ago, a Power was granted to someone else, perhaps a child from a prior marriage. If that prior Power is not revoked, there may be two valid Powers, held by people with inconsistent interests. A careful preparer should ask the Principal if there are any outstanding Powers of Attorney, and revoke them if appropriate – with notice to the holder of the revoked Power and to anyone else who the Principal thinks may have the Power. Generally, unless our clients are certain that they want a prior Power of Attorney to remain valid, we recommend that the new Power of Attorney should explicitly state that it revokes all prior Powers of Attorney.
New York State strongly prefers the use of its statutorily prescribed form of Power of Attorney. However, it does permit the use of other forms but only if they comply with tightly prescribed rules concerning the format, language, purpose, place of execution, and even typeface.
The failure to notarize the Principal’s signature can be fatal to the effectiveness of the Power.
A primary concern in preparing a Durable Power of Attorney for a client is the capacity of the client.
In New York, a valid Power of Attorney must be “signed and dated by a principal with capacity” and must be notarized. “Capacity” to execute a valid Power of Attorney in New York is defined by statute to be the ability to comprehend the nature and consequences of the act of executing and granting, revoking, amending or modifying a Power of Attorney. A person with mild dementia may still have the requisite capacity to execute a valid Durable Power of Attorney. If you think that a family member or a client may need a Power but there might be a question of capacity, it is best to discuss the issue, make a memo of the discussion, and have the Power executed and notarized while the window of opportunity remains clearly open.
The effectiveness of a Power of Attorney can be delayed, so that it takes effect only on or after a specified date or contingency. This is also called a Springing Power of Attorney. Examples of a contingency might include an injury or illness that required prolonged hospitalization or certification by a doctor that the Principal is incapacitated. So long as such a Power was properly executed when the Principal had the requisite capacity, delaying effectiveness until he or she is incapacitated is valid.
A Springing Power of Attorney could be a solution to the problem of someone who realizes an oncoming inability to handle his or her own affairs but is reluctant to delegate such authority just yet.