What is a Power of Attorney?
A Power of Attorney is a powerful and important legal document delegating authority from one person to another. It allows the agent you’ve appointed to make financial decisions on your behalf. The person giving the authority is known as the principal, while the person to whom the authority is given is known as the agent or the attorney-in-fact. The term “attorney-in-fact” does not mean the person is a lawyer. You can give very broad authority to your agent, or you can limit the authority you are granting to certain specific acts. The power of attorney deals only with financial matters. In order to give another the authority to make medical decisions on your behalf, you will also need to sign a health-care proxy.
A power of attorney is a very effective tool should the principal becomes incapacitated and unable to act for themselves. If you do not have a durable power of attorney in place should you become incapacitated, your family may have no choice but to file for guardianship, an expensive and time-consuming process. Signing a power of attorney and health care proxy allows you to make the decision as to whom you wish to act as your agent, while a conservatorship or guardianship leaves the decision-making up to a court.
New York States’ New Power of Attorney Form
On September 1, 2009, significant changes to the New York Power of Attorney (POA) laws went into effect. These changes relate to both the content and administration of the statutory short form power of attorney.
All powers of attorney signed prior to this date remain valid unless revoked.
By default, anyone executing a new Power of Attorney will automatically revoke any prior POAs. Attorneys and principals alike should be very careful when executing the new form. The new POA may and should be modified to specifically state that prior powers of attorney should not be revoked.
By way of illustration, if you already have a signed and notarized durable power of attorney for estate planning purposes and for use in case of future incapacity, any future limited use POAs you execute must be modified so that the durable POA is not revoked. Some examples of limited powers of attorney include those used for the IRS, real estate transactions and car leases. Similarly, if you already have a POA being utilized for a limited purpose, the durable general POA should be modified before it is executed so that your limited POAs are not revoked.
Another significant change to the New York POA is that the new form requires that both the principal and the agent must sign in front of a notary public before it becomes valid. This forces the agent to acknowledge their fiduciary duties. Many principals do not wish their agent(s) to know that they have been granted this power until it is needed; however, the agent does not have to sign concurrently. The form can be held at your attorney’s office until needed (in the event of your incapacity) at which point the agent can sign and notarize the POA to make the form effective.
The new short form also allows you to designate an independent monitor and gives the monitor authority to request records of all transactions made on the principal’s behalf.
The New York Statutory Major Gifts Rider
Should a principal desire to give their agent the ability to make property transfers and major gifts (more than $500) an additional form is required, the Statutory Major Gifts Rider (SMGR). Both forms must be signed concurrently. Additionally, the SMGR must be signed in the presence of two witnesses and notarized in order to be valid.
The new statutory short form power of attorney and rider is designed to enhance protection of the principal (the person granting the power). While the principal may still grant the ability to give major gifts and property transfer power to the agent, the new comprehensive form requires the principal to initial each different category of gift-giving authority and forces the principal to specifically name beneficiaries or a class of beneficiaries other than his/her spouse, children or parents. This serves to give the principal adequate notice that the power they are granting is expansive. All gifting powers must be specifically designated and consented to in the SMGR.
Without a properly executed POA and SMGR, the agent will have no authority to:
- Make gifts to themselves
- Add, delete, or change beneficiaries on insurance policies
- Add, delete or change beneficiaries on retirement accounts
- Make changes to joint or totten trust accounts
- Gift more than $500 per donee per year
Additionally, the ability to give annual gifts is further categorized into (a) the amount of the gift tax exclusion (currently $13,000) or (b) the authority to make gifts and transfers in excess of the annual exclusion. Those principals with children who have Special Needs Trusts are cautioned to include language that the agent is not required to make annual exclusion gifts.
Better to Have, Than Have Not
You should, of course, choose your agent carefully. The best person is a close family member, preferably one who lives nearby.
Despite the feelings of vulnerability and need for trust when designating an agent in a power of attorney, executing the power will also bring peace of mind to both you as the principal and family members.
If you have been through a divorce since you signed your original power of attorney that POA has been automatically revoked and you will need to execute a new one.
Signing both the POA and SMGR allows your agent in the event of your incapacity to continue to fund college-savings plans for your children and grandchildren, make charitable bequests, convert traditional IRAs to Roth IRAs, and gives your agent access to electronic records that are password protected.
Clearly, New York States’ new Power of Attorney and Statutory Major Gift Rider are complex, powerful tools. Although you are not required to use an attorney to execute these forms, seeking the advice of a qualified attorney may help you to understand the broad powers you are granting.