On Dec. 15, New York Governor Andrew Cuomo signed a bill representing the most significant change to the New York law governing powers of attorney (POA) in almost a decade.
The new law seeks to increase the acceptance and use of POAs by making the form more user-friendly, expanding the definition of “Statutory Short Form Power of Attorney,” protecting third parties who reasonably rely on the validity of a POA, providing a clear procedure for accepting or rejecting a POA and creating a remedy against those who unreasonably reject a valid POA.
Perhaps the most important change in the bill relates to the definition of “power of attorney.” In an effort to increase the acceptance of POAs, the new law redefines a “power of attorney” to include both the statutory short form as well as a non-statutory power of attorney. It also allows a POA to be treated as a “statutory short form power of attorney” if it “substantially conforms” to the statutory form. Previously, the exact wording of the form needed to be used. This broader standard will disregard insignificant spelling, wording and punctuation errors. It allows for the use of language that’s “essentially the same,” but not the exact language found in the statute. Attorneys can also omit irrelevant clauses without affecting the validity of the POA. The expanded definition of POA coupled with the relaxed language standard will allow POAs to be shorter, more easily understood and more readily accepted by third parties.
Expanded Options for Execution
The new law modifies the signature requirement for executing a POA. Going forward, a principal can either sign the document or have an uninterested third-party sign the document at the principal’s direction while in their presence. This addition will benefit clients whose disability would otherwise prevent them from executing a POA, while incorporating a standard that’s been used successfully in other areas of New York law to safeguard clients from fraud.
Another notable change is the elimination of the statutory gift rider in favor of an “optional” gift transactions clause. Eliminating the need to execute a second document is welcome relief for both clients and practitioners. The value of personal and family maintenance gifts a power holder can make will increase from $500 to $5,000, with the option to authorize gifts in excess of the $5,000 limit.
Additional Third-Party Protection
The new law offers additional protection for third parties who in good faith act on a notarized POA. Unless the third party had “actual knowledge” the signature wasn’t genuine, they may rely on the presumption that a notarized signature is genuine. Third parties are also protected against void, invalid or terminated POAs unless they had actual knowledge. The third party may request a certification by the agent of any factual matter concerning the principal, agent or power of attorney, and they may request an opinion of counsel as to any matter of law concerning the power so long as the third party provides a written explanation of the reason for the request. Going forward it’s reasonable to expect financial institutions will have agents sign under penalties of perjury that, to the best of their knowledge, the POA was validly executed and remains in effect and that the action to be taken is within the scope of the agents’ authority.
Protection Against Unreasonable Rejection of Legitimate POAs
While the legitimate reasons for refusing a POA are largely unchanged under the new law, it’s now clear that a third party has a limited amount of time to honor the POA or reject the POA in a writing that sets forth the reasons for that rejection. That’s generally 10 days from the time the POA is properly presented. Another major change is that if a special proceeding is brought to compel the third party to honor the POA and the third party is found to have unreasonably rejected the POA, it’s now possible to recover damages, including reasonable attorney’s fees and costs. It can only be hoped the extra protections offered by the new law coupled with the risk of paying damages and attorney’s fees will encourage more third parties to promptly accept properly executed statutory POAs.
The new law will take effect 180 days after Dec. 15, 2020. The adoption of the bill doesn’t affect the validity of any existing valid short form statutory POA, gift riders or revocation of a POA that was delivered to an agent before the effective date of the bill.