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By John M. Bigler As promised, this month we will re-visit the New York General Durable Power of Attorney. The Power of Attorney is an extremely useful document which allows an individual, otherwise known as the principal, to appoint an agent to make financial decisions on the principal's behalf. A number of years ago I went into detail as to the benefits of the document as well as the dangers. However, at the time of that first article in 1996, there had been one change in the form as of October, 1994. In January, 1997 the form changed again. In part, the form became more user friendly with more understandable language. However, in my opinion, the effect of the various changes is to make the form increasingly more difficult for the lay person to understand. Therefore, I believe there is a need to review the form and its purposes.
There are three types of powers of attorney. There is a general power of attorney which becomes ineffective once a person becomes disabled or incompetent. As that is the time when the power is most needed, the general power of attorney is the one that is the least effective and little used. Typically, someone out of state and wanting to appoint an agent to handle a particular financial transaction will use this form.
The second power of attorney is the durable power of attorney. As the name implies, this power lasts even if a person becomes disabled or incompetent. This is the form that is used regularly in elderlaw planning. The form can be revoked at any time by the principal and is automatically revoked on the principal's death, but will continue to be effective otherwise.
Third, there is a springing power of attorney that only springs into effect when a person becomes disabled. Although in theory this sounds like the best form, in reality it is one that I rarely use. The idea is great. The principal is not giving the agent any authority at the present time, but only if and when the principal should become disabled. The problem is with various financial institutions who are typically suspicious of the documents to start with. In my opinion, adding an extra layer of eligibility, that being proof of disability, gives the financial institution another excuse not to honor the document. My feeling is that you should have the utmost confidence and trust in the agent you are appointing to the handle your financial affairs. If you have that confidence, then you can appoint them immediately. If you don't, you shouldn't appoint them at all.
The new forms have a space to name an agent or co-agents. If there are co-agents, then there is a bracket that will be initialed by the principal indicating whether those agents have the right to act separately, or are required to act jointly. Obviously, separately is easier but jointly is more secure. There is also space on the form to name alternate agents in the event that the first named agents are not capable of acting. The form not only needs to be signed but initialed next to each power being authorized. A number of powers are listed on the standard form such as real estate transactions, banking transactions, the right to make gifts, etc. An individual's initials must be put in the brackets next to each power or there is a place on the bottom of the form which indicates that all of the powers listed next to that bracket will be included. This is for the frail individual that would have difficulty initialing each and every bracket.
Most attorneys will expand on the standard form and include additional powers. Some of those powers can be critical. For example, the standard form only allows gifts of up to $10,000.00 per year to any individual. That is a serious limitation in elderlaw planning. I like to add a power on my form which allows the agent to make unlimited gifts, including to the agent. Typically, it may be a spouse or child who comes to see me in regard to someone who is in danger of nursing home care and who has assets in their name. Normally, it is that same family member who is one of the agents on the power of attorney. We will want that person to have the freedom to make transfers to themselves so as to start a period of ineligibility running for Medicaid purposes.
Several warnings with regard to powers of attorney. In addition to the general durable power of attorney that I will prepare for a client, I will advise the client as well, to obtain the power of attorney forms from the various financial institutions where assets are held. Frequently, the client will question the need to duplicate the document. However, although legally the general durable power of attorney is good for all financial transactions in New York, it has often times occurred that an employee in a financial institution will make life difficult. Sometimes they will challenge the age of the power of attorney and it needs to be pointed out that it is a "durable" document. Other times they will question the fact that the power of attorney is not the particular form used by that institution. They then have to be advised that it is a violation of the New York State General Obligations Law not to accept the standard form. However, simply to make life easier, it makes sense to get the institution's form and execute that as well, so that at a time of crisis an additional headache is not imposed by an overly aggressive employee of the financial institution.
Lastly, the form has changed twice since 1994. Whether you are filling out the form on your own or having someone do it for you, make sure it is the proper form. I am constantly amazed when clients bring forms into my office that they purchased in a stationery store and they are the old forms. Any form prior to January 1997 is not going to be accepted if it was executed after that date.
The power of attorney form has become increasingly more sophisticated over the last several years. Unlike the health care proxy, for which the assistance of an attorney is not necessarily required, the execution of a power of attorney has come to a point where having an attorney prepare it for you and advise you as to its consequences is an essential fact of life. I believe that both of these documents should be at least considered by everyone, whether young or old or in the middle.
Reprinted with permission of the Suffolk Times © 2003
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The main reason to have a power of attorney in elderlaw planning is so that an agent can act on an individual's behalf to make financial decisions when the individual is no longer capable of making decisions on their own. The power of attorney avoids the need for a guardianship proceeding through the Courts. The guardianship proceeding can be expensive and time consuming and especially when there is a need to transfer assets quickly so as to establish eligibility for Medicaid. The time lost in the guardianship proceeding can often be even more critical than the cost of such a proceeding.