On June 13, 2021, New York's new law regarding statutory powers of attorney ("POA") took effect. The purpose of this article is to highlight some important changes that were made, and to provide guidance as to steps that should be taken when dealing with POAs. Although the changes were intended to simplify and to increase acceptance of POAs by financial institutions, this remains an incredibly complex and confusing area that requires planning and skilled legal counsel to navigate.
Changes Made By the New Law
1. Allowance for Substantially Compliant Language
Under the prior law, a power of attorney that deviated from the exact wording of the form provided in the prior statute was invalid. In practice, this led many institutions to refuse to accept any power of attorney form except their own. It also led to the rejection of forms that had only insignificant deviations from the statutory language, and unfortunate situations in which principals and agents believed that they had engaged in a transaction that complied with the law, only to have a court rule they had not.
Under the new law, a POA that "substantially conforms" to the language set forth in Gen. Obl. L. §5-1513 will be valid even if it:
- contains an insignificant mistake in wording, spelling, punctuation or formatting, or the use of bold or italic type;
- uses language that is essentially the same as, but is not identical to, the statutory form, including utilizing language from a previous statute;
- modifies or excludes certain clauses, provided that the modifications and exclusions are specified in section (h) of the form; or
- includes additional powers not specified in the statute, provided that the additional powers are specified in section (h) of the form.
Although the new law provides flexibility in drafting, two clauses that the lawmakers deemed essential cannot be omitted. They are the "Important Information for the Agent" and the "Caution to the Principal" set forth in NY General Obligations Law §5-1513. Because the new law calls out those two warnings for special attention, anyone that is asked to prepare or accept a POA should take special care to ensure that the POA includes those warnings with only the slightest variations, if any.
2. Sanctions For Unreasonable Refusal To Accept A Valid POA
Under the old law, there was no effective sanction against a third party that refused to accept a valid power of attorney. Although an aggrieved principal or agent could commence a special proceeding seeking injunctive relief, doing so was cumbersome and expensive, and was rarely done. A court may now award damages, including reasonable attorney's fees and costs, if the court finds that the third party acted unreasonably in refusing to honor the agent's authority.
When Is It Unreasonable To Reject A Valid POA? The new law specifies certain practices that are declared to be unreasonable, although the list is not exhaustive. Under the new law, it is unreasonable to refuse to accept a properly executed POA if the only reason for the refusal is:
- The POA is not on a form prescribed by the third party to whom the power of attorney is presented;
- There has been a lapse of time since the execution of the POA; or
- There has been a lapse of time between the date of acknowledgment of the signature of the principal and the date of acknowledgment of the signature of any agent.
When Is It Reasonable To Reject A POA? Section 5-1504 of the new law provides a list of situations when it is reasonable to reject a POA or the use thereof, such as actual knowledge that a signature is not genuine, improper execution of the POA, the refusal of the purported agent to provide an original or attorney certified copy of the POA upon request, knowledge that a report has been made or should be made alleging physical or financial abuse, neglect, exploitation or abandonment of the principal by the agent, actual knowledge or a reasonable belief that the principal is dead, actual knowledge that the principal was incapacitated at the time of execution of the POA, actual knowledge that the principal is incapacitated (in the case of a non-durable power), reasonable belief that the POA was procured through fraud, duress or undue influence, or actual notice of the termination or revocation of the POA. In addition, it will be reasonable for a financial institution to reject a POA if the agent is named on an anti-money-laundering or anti-terrorist list or if the signature of the principal or agent does not match the signature on file given at or about the time the POA was signed. This list is not exhaustive.
3. Safe Harbor for Third Parties Acting in Good Faith And Without Actual Knowledge
While imposing liability for the unreasonable refusal to accept a valid POA, the new law also creates a safe harbor under which the recipient of a POA will be insulated from liability and held harmless if the recipient acts in good faith when accepting the POA, even if the POA is later determined to be invalid. To fall within the safe harbor, certain conditions must be met, including:
- Acknowledged Signature. The principal's signature must appear, on the face of the POA, to have been verified before a notary public or other individual authorized to take acknowledgements; and
- No Actual Knowledge of Infirmities. The recipient cannot have actual knowledge that the principal's signature is a forgery, that the POA is void, invalid, or terminated, or that the agent is exceeding or improperly exercising the agent's authority.
When Is A Business Considered To Have Actual Knowledge? A bank or other financial institution is not considered as having actual notice that a POA issued by an account holder has been revoked or terminated unless it receives written notice of the revocation or termination at the office at which the account is located and has had a reasonable opportunity to act on that notice. Moreover, the new law provides that a business that conducts activities through employees is without actual knowledge of a fact relating to a POA, a principal, or an agent if the employee conducting the transaction involving the POA is without actual knowledge of the fact after making reasonable inquiry with respect thereto. What is a reasonable inquiry will necessarily vary from situation to situation.
4. Elimination of the Statutory Gift Rider
Under the old law, the power of attorney was a multi-part document that encompasses both the power of attorney form and an optional statutory gift rider ("SGR") that was required to be separately executed if the principal wished to authorize the agent to make gifts of the principal's money or any other property (such as real estate). The two documents had different execution requirements, leading to unnecessary confusion and mistakes in execution. The new POA eliminates the need for a separate SGR, by allowing the principal to authorize certain gifts in the revised POA form itself. Under the new law, a principal may modify the standard form of POA to authorize the agent to make gifts in excess of $5,000 in any one year, to make gifts to him or herself, or to make other gift transactions and/or changes to interests in the principal's property, without the need for a separate SGR.
5. Expand Agent's Authority Regarding Health Care
The new statute greatly expands the principal's ability to grant authority over financial matters relating to health care. The new law allows a principal to authorize an agent to:
- handle the principal's benefit entitlements and payment obligations;
- receive HIPAA protected health information from "health care providers" and "health plans," in order to ascertain the benefits to which the principal is entitled and to determine the legitimacy and accuracy of charges for health care provided to the principal;
- receive the health care benefits to which the principal is entitled;
- meet the principal's financial obligations for health care provided to the principal; and
- represent the principal, and to act as the principal's personal representative, with respect to financial matters pertaining to the principal's health care.
Although the new statute greatly expands the agent's permissible authority over health care matters, that authority extends only to financial matters and does not permit the agent to make health care decisions for the principal. Such decisions will still require a separate, validly executed health care proxy.
6. Limited Impact On Many Commercial Transactions
The new law is applicable to personal banking/financial transactions, i.e., consumer banking/financial transactions. Per N.Y. Gen. Oblig. Law § 5-1501C (Powers of attorney excluded from this title), the statute is inapplicable to:
- A power of attorney given primarily for a business or commercial purpose;
- A power of attorney to the extent coupled with an interest in the subject of the power of attorney;
- A power of attorney given to or for the benefit of a creditor in connection with a loan or other credit transaction; and
- A proxy or other delegation to exercise voting/management rights with respect to an entity.
7. Additional Technical Changes
The new law makes other technical changes, including the following:
- a third party may sign at the direction of a person who is physically unable to sign; and
- there are new record keeping requirements for agents.
8. Effect of New Law on Prior Powers of Attorney
- According to the new law, a power of attorney, and any optional SGR, valid at the time executed by the principal, will remain valid even after the effective date of the new law (June 13, 2021), provided that it was valid under the law in effect at the time of execution.
What To Do When Asked to Honor A POA
- Act Fast. Under the new law, the recipient of a POA has only 10 days after receiving a POA in which to accept it, reject it, or ask for an affidavit from the agent or an opinion of counsel. The recipient of a POA should promptly forward it to an employee who is trained in the relevant legal requirements for response, who must respond in writing. A sample response notice can be found here.
- Request An Affidavit From The Agent. If there is any concern about an agent's authority to act under the POA, the person being asked to honor a POA can request an affidavit from the agent concerning the principal, the agent or the POA. A sample agent affidavit can be found here. The request should ask the agent to certify that he/she is not aware of any facts indicating that the POA: (a) is not valid and effective; (b) has been terminated, revoked or modified prior to the execution of the affidavit; or (c) has been modified in any way that would affect the ability of the agent to authorize or engage in the transaction. Every business that deals with POAs on a regular basis should use a form that lists various standard grounds for rejection, with space to include additional grounds. A sample rejection notice form can be found here. The person requesting an affidavit must either approve or reject the POA within 7 days of receiving the affidavit, but the statute does not specify the consequences for failing to act within 7 days.
- Request An Opinion of Counsel From the Principal. Before accepting or rejecting a POA, the recipient may also request an opinion of counsel ("Opinion") from the principal, which must be provided at the principal's expense. A sample Opinion can be found here. It can be expected that Opinions will be required routinely, and this (and the projected expense) should be discussed with the principal when the POA is signed. The Opinion can be as to any matter of law concerning the POA, but the person making the request must provide the reason for the request. The statute does not specify how long a person requesting an Opinion has in which to accept or reject a POA after receiving the requested opinion. A person that is asked to accept a POA may rely upon an Opinion without further investigation.
- Accept or Reject the POA. If the recipient of a
POA elects to reject it, either before or after requesting an
affidavit and/or Opinion, it must send a written notice listing all
of the reasons the POA is being rejected to the principal and the
agent. A sample rejection notice can be found here. Reasons for
- non-conforming form;
- missing or wrong signature;
- invalid notarization;
- unacceptable identification;
- the POA is not a signed original or attorney certified copy;
- suspicion of elder abuse;
- the agent is named on an anti-money-laundering or anti-terrorist list; and
- the signature does not match the signature on file given at or about the time the POA was signed.
In deciding whether to include a particular ground for rejection, one must tread a fine line. On one hand, any reason for rejection that is not specified in the initial rejection notice will be deemed waived, which suggests that one should err on the side of inclusion. On the other hand, any ground that is deemed unreasonable could subject the rejecter to sanctions.
The new law permits the party receiving the rejection notice to respond in writing to the rejection notice (presumably to dispute the reason(s) for rejection). If such a response notice is sent, the party that rejected the POA must then respond to the response in writing within seven (7) business days of receipt of the same, and must state whether the POA will be honored or finally rejected.
1 This amount is only $500 in the current law and this limitation is often the reason why parties currently elect to execute an SGR.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.