2021 Power of Attorney Changes: A Step in the Right Direction

As published in the New York Law Journal on September 13, 2021.
By Marcus O’Toole-Gelo, Partner

The New York power of attorney is a classic and essential tool that has been through numerous iterations over the years. Prior changes to the statutory form (including 1994, 1997, 2009 and 2010) were intended to modernize and improve the statutory form, as well as address ongoing issues in its use. The 2021 iteration is no different in this regard. Together, Chapter 323 of the Laws of 2020 and Chapter 84 of the Laws of 2021 have made a number of revisions to the General Obligations Law (GOL) regarding powers of attorney, and this article will cover the most significant of them.

Substantially Conform

The 2009 statutory form (with small modifications in 2010) was a major change from prior forms. Among other things, it introduced the “Caution to the Principal” and “Important Information for the Agent” sections to the statutory form, which are intended to warn principals of the consequences of executing a power of attorney and notify agents of their powers, duties, and responsibilities. That version of GOL 5-1505B(1)(d) required that a statutory power of attorney contain the “exact wording” of both the “Caution to the Principal” and “Important Information for the Agent” sections from the concurrent version of GOL 5-1513. As a result, a small typo in either section, or use of a 2009 version of the form instead of the 2010 version of the form, could invalidate the entire power of attorney, a harsh punishment.

The new version of GOL 5-1505B(1)(d) changes the exact wording requirement to instead only require the wording of these sections to “substantially conform” to the statutory wording. GOL 5-1501(n) now specifically states that “insignificant” typos or formatting errors, or the use of a prior version of these sections, may still be considered to substantially conform. This will assist in ease of use, especially by non-attorneys or attorneys not experienced in estate planning.

Elimination of Statutory Gifts Rider

A second cause of frequent consternation in the 2009 and 2010 statutory forms was the statutory gifts rider. In those iterations of the statutory form, if the principal wanted to empower their agent to make gifts in excess of $500, the principal needed to contemporaneously execute a separate statutory gifts rider annexed to the power of attorney. This added significant length to the statutory form and caused substantial confusion. Now, the 2021 power of attorney form starts with an increased gift limit of $5,000 (if the principal authorizes that authority). In addition, the separate statutory gifts rider is now removed completely. Any gifting authority beyond $5,000 that the principal wishes to authorize will instead be included in the modification section of the power of attorney. In effect, some of the language an estate planning attorney previously used in their statutory gifts rider will be moved over to the modifications section of the base power of attorney, and adjusted as necessary.

Third Party Acceptance

Another major area of change is not related to the form itself but instead related to third party acceptance of a power of attorney. Difficulties with third parties delaying review or arbitrarily rejecting powers of attorney are not new, and the revised statute includes an attempt to solve the problem. In general, a power of attorney is aimed at allowing an agent to act on behalf of the principal with regard to financial affairs. As such, in order for it to operate, third parties need to accept and acknowledge its validity to process whatever transaction the agent is seeking to make on behalf of the principal. One of the most common uses of a power of attorney in the third party context is banking transactions (or other financial accounts such as brokerage accounts, life insurance, or annuities).

Sometimes, a bank or other financial institution will claim a power of attorney is with their legal department for “review” for weeks and not act on it, or verbally give some vague or arbitrary excuse for rejecting it. These kinds of delays can cause significant financial harm to the principal. For instance, a power of attorney is often used to make asset transfers to assist in qualifying for Medicaid benefits, and transfers need to be completed by certain deadlines. Depending on the timing, a delay could result in additional months of ineligibility. The new GOL 5-1504(3) has a required procedure for third parties to follow when presented with a power of attorney that is acknowledged and witnessed. Within 10 business days of receipt, the third party must do one of the following: (1) honor the power of attorney, (2) reject it, or (3) request that the agent sign a full force and effect affidavit. If the third party rejects the power of attorney, they must provide the reason for such rejection in writing. If the third party thereafter receives a response addressing the reasons, that third party must, within seven business days, either honor the power of attorney or finally reject it, stating the final reasons in writing.

Unreasonable Rejection and Damages

If you ask bank officers about powers of attorney, some will tell you that they are worried about liability for processing transactions using a power of attorney. Unofficially, they also find the additional administrative work a hassle. Some will throw up unnecessary roadblocks such as insisting on the use of their own internal forms or demanding that the principal come to the bank in person to confirm the validity of a power of attorney. Officially, the 2010 version of GOL 5-1504 prohibited most of these types of roadblocks, including that a third party is prohibited from refusing to accept a power of attorney without reasonable cause. The statute also specifically defined certain things that would not be considered reasonable cause, including that the power of attorney was not on a bank’s own form.

That being said, there was not much of a punishment if a bank or other third party refused to accept a power of attorney for any arbitrary reason. The statute already authorized a special proceeding under GOL 5-1510 to compel acceptance of a power of attorney, but that could be costly and take a significant amount of time to resolve. The revised GOL 5-1504(4)(b) now adds that if such a special proceeding is brought to compel a third party to honor a power of attorney, a court may award damages, including reasonable attorney fees and costs, if the third party acted unreasonably. On the other hand, if a third party reasonably accepts a power of attorney and conducts a transaction in reliance on it, then that third party is free of any liability.

The awarding of damages and attorney fees will hopefully act as a deterrent against third parties unreasonably refusing to honor powers of attorney. Enforcing these provisions still requires the agent to pursue a special proceeding, but perhaps that threat will lead to internal policy changes at financial institutions that will make unreasonable refusals less common than they have been in the past.

Execution Requirements

Despite the elimination of the statutory gifts rider, GOL 5-1501B(1)(b) now not only requires that the principal’s signature on the power of attorney be acknowledged (notarized), but also witnessed by two persons (the notary can also act as a witness). Previously, only the statutory gifts rider required witnesses. The agent’s signature still only requires acknowledgment. Helpfully, the new GOL 5-1501B(1)(b) also allows a power of attorney to be signed by another person (other than agent) on behalf of the principal at the principal’s direction and in his or her presence. A similar procedure has been available for executing health care proxies (PHL 2981) and wills (EPTL 3-2.1) for quite a while, but was not previously available for the execution of a power of attorney. This procedure would typically be used in a situation where the principal could not physically sign (perhaps due to illness or physical disability), but still has the mental capacity to execute the document.

Impact on Estate Planning

The new version of the power of attorney statute went into effect on June 13, 2021. The most immediate impact of the statutory revisions is that any power of attorney executed on or after that date must use the revised statutory form. Powers of attorney executed prior to June 13, 2021 are still valid if the form used was in effect at the time of execution. From a practical standpoint, the form itself will be a little shorter, but not look significantly different to a layperson. In addition to the base form changes, the most significant changes will be in the use of powers of attorney. The loosening of some of the technical requirements (substantially conform instead of exact wording,) required responses from third parties presented with a power of attorney, and damages for unreasonable refusal to honor a power of attorney are intended to make powers of attorney easier to use. How significantly banks and other third parties actually change their policies and behaviors remains to be seen, but this is a step in the right direction.

Marcus O’Toole-Gelo is a Partner at Cona Elder Law located in Melville. The firm concentrates in asset protection, estate planning, probate and estate litigation and special needs planning. For information, visit www.conaelderlaw.com.