New power of attorney (“POA”) legislation was signed into law by Governor Cuomo on December 15, 2020, with changes to the existing law effective as of June 13, 2021. This represents a significant change in how POA documents can be made, and reliance upon them going forward.
The changes implemented will not impact an existing POA made prior to the new law, provided it was made and executed in accordance with the then law.
There are four notable changes to the New York POA Law, as follows:
1. Substantial Conformity Standard
Previously, the POA (including the statutory gift rider) had to be written with strict adherence to the statute and its language. A failure to follow the statute’s exact wording could invalidate the document, which could cause significant difficulties, particularly when the principal suffered from an illness or incapacity and therefore it might be too late for corrections to be made. The new law aims to change this by allowing substantial conformity with the statue. Instead, validity of the prepared POA will be considered in its entirety, to determine if the statute was satisfied. This leaves room for modification of the document, and even minor errors, which might have invalidated the POA under the old law.
2. Elimination of Statutory Gift Rider
Previously, the statutory gift rider was a distinct part, separate from the POA statutory short form. This separate rider was intended to help prevent fraud and abuse of power. However, having two parts could cause confusion, and made possible inconsistencies between the two parts. The new law therefore allows a principal to authorize gifts (and in an amount over $5,000 in a single year) directly within the POA document. It also allows the principal to make gifts to himself of herself, as well as other gift transactions.
3. Penalties for Unreasonable Refusal
A POA now has a presumption of validity, with third parties no longer permitted to reject one which has been properly executed without reasonable cause. Moreover, a court may award damages (including attorneys’ fee and costs) if it is determined that the third party did not act reasonably in rejecting the document. Previously, the only remedy for a failure to accept a valid POA was under the NY General Obligations Law §5-1510, which limited relief to an injunction compelling acceptance of the POA.
4. Safe Harbor for Good Faith Third Parties
The new law also includes provisions from the Uniform POA Law provisions that create a safe harbor for recipients of a POA. Provided third-party recipients act in good faith, they are shielded from liability, even if the POA is later deemed invalid. To receive protection, however, the recipient must meet two important conditions. First, the POA must have the principal’s acknowledged and verified signature. Second, the recipient of the POA must not have any actual knowledge that the principal’s signature is forged, that the POA is invalid, or that the agent is abusing his or her authority.
Trust and Estate Implications
The new law should make it easier to prepare POAs as part of the estate planning process. The presumption of validity and the new substantial conformity standard helps prevent a mistaken invalidity of the document, and the new gift rules are more flexible and generous.
Ultimately, it will take some time for attorneys, clients and courts to adjust to the new law. Those with existing powers of attorney and statutory gift riders under the old law—especially if there are concerns of invalidation—will want to consider updating their POA to take advantage of the new rules.
If you are ready to update your estate plan and revisit your power of attorney based on New York’s new law, contact me today to set up an introductory legal consultation.
