Making Sure Your Power of Attorney Works for You

A power of attorney is a very powerful document that can work either for or against your interests. Unfortunately, the general public and attorneys alike sometimes do not put enough thought into these documents that many consider to be “simple” and easy to draft.

On September 1, 2009, a new power of attorney form was put into effect in New York. This form was modified once again and changes were made effective September 12, 2010. The purpose of the modifications to the power of attorney form was to alert consumers that they were giving extensive powers to their agents over their property. Indeed, the first paragraph of the power of attorney form states, “CAUTION TO THE PRINCIPAL: Your Power of Attorney is an important document. As the “principal,” you give the person whom you choose (your “agent”) authority to spend your money and sell or dispose of your property during your lifetime without telling you. You do not lose your authority to act even though you have given your agent similar authority.”

There are two parts to the power of attorney form: the Power of Attorney New York Statutory Short Form (power of attorney) and the Power of Attorney New York Statutory Gifts Rider Authorization for Certain Gift Transactions (statutory gifts rider).  In general, the power of attorney deals with the day to day management of one’s financial affairs and the statutory gifts rider deals with tax, financial and Medicaid planning.

The day-to-day management of your financial affairs involve such things as paying your bills, balancing your checkbook, buying or selling real estate, opening and closing bank accounts, dealing with the insurance company with respect to a claim and so on. The planning aspect generally involves the transfer of assets from your name to someone else or to a trust.

Although a power of attorney is a very important estate planning tool, you should make sure that you do not make the wrong person your agent. You should make sure that the person you choose has the integrity, competence, judgment, knowledge and skills necessary to perform their job as your agent. Putting a power of attorney in the wrong hands is like giving away a license to steal from you. Although there are legal remedies against a person who abuses his power, they are expensive and time-consuming to implement and you may find that you have a judgment against someone who has no money. The best thing to do is to appoint the right person to be your agent on your power of attorney from the beginning.

In New York, there are strict formalities that must be followed in order to have a valid statutory power of attorney and/or statutory gifts rider. If you want to have a statutory gifts rider, it must be executed at the same time that the power of attorney is executed. The statutory forms may be modified but only where specifically permitted in the document. If you want to give your agent the ability to make gifts to himself or herself, you must specifically authorize such in the statutory gifts rider. If you fail to follow the formalities required by statute, third parties do not have to recognize your power of attorney or your statutory gifts rider.

A well drafted power of attorney may prevent the pursuit of a guardianship proceeding. For example, as the result of Alzheimer’s disease, John lost legal capacity. John does not have a power of attorney and because he does not have legal capacity to sign one, a guardianship proceeding must be commenced. Joan has a power of attorney but it does not contain the powers she needs in order to engage in Medicaid planning, such as appropriately drafted gifting provisions and trust provisions. Thus, a guardianship proceeding must also be pursued for Joan.

A guardianship proceeding is a court proceeding that is expensive and time-consuming. A petition must be filed with the court. A court evaluator will be appointed by the court to draft a report for the judge. The judge will hold a hearing to determine whether the person is incapacitated and what powers will be granted to the guardian as a result of this incapacity. If the guardianship is contested, multiple court appearances may be necessary. The judge will issue a decision and the petitioner’s attorney will draft an order for the judge’s signature in accordance with the court’s decision. Once the order is signed, the guardian must obtain a commission from the County Clerk, which is evidence of her authority to act on behalf of the incapacitated person. The court may direct the Guardian to post bond and to attend a guardianship course. Various reports must be filed with a court examiner. The guardian can only be discharged by court order.

In the right hands, a power of attorney can be a very useful tool in protecting the individual from financial harm. In the wrong hands, it can be abused by the unscrupulous. It is very important that your power of attorney be drafted by a well-qualified attorney. The attorney should be exceptionally familiar with the relevant law concerning powers of attorney, taxes and Medicaid planning.