New York’s New Power of Attorney Law and Forms

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New York’s New Power of Attorney Law and Forms

Client Advisory

November 16, 2009

Background

Effective September 1, 2009, New York adopted a new statutory "short form" power of attorney form and revised the statute that governs the interpretation and operation of all powers of attorney, including those which are not "short form."

The new legislation was enacted to clarify the ability of the agent to make gifts of the principal’s property, make explicit an agent’s fiduciary relationship to a principal, and reflect recent developments in the Internal Revenue Code and the Health Insurance Portability and Accountability Act, but has broader unintended impact on an individual's business dealings.

New Forms

All powers executed after September 1, 2009 must comply with the new statute. "Short form" power forms are available from legal stationers or from your lawyer at Carter Ledyard & Milburn LLP. Financial institutions sometimes have their own forms. You should ensure that any such form has been modified to conform to the changes in the statute.

Application of the Statute

Powers of attorney have been used regularly to empower a relative to handle the financial affairs of an incapacitated or elderly individual and now are commonly used to accomplish real estate closings without requiring the sellers and purchasers to appear in person. They are also used in a wide variety of commercial contexts such as:

Powers of attorney signed by corporate directors authorizing a company official to sign a registration statement to be filed with the Securities and Exchange Commission.
Powers of attorney signed by customers authorizing stock brokers to buy and sell securities, make margin loans, and take other actions.
Proxies used in elections of directors and voting on other matters by shareholders of public companies.
Proxies for voting at annual meetings of cooperative apartments and charitable organizations.
Powers of attorney used by banks in loan agreements enabling the sale of collateral in the event of default.
Routine provisions in commercial agreements authorizing one person to do something on behalf of another in the event of a contingency.

Features Warranting Special Attention

Individuals executing powers of attorney and the persons to whom powers of attorney are granted should be aware of several features of the rules now governing powers of attorney:

The new law applies to every "written document by which a principal with capacity designates an agent to act on his or her behalf," executed in New York by an individual after September 1, 2009.
The new law requires acknowledgment of the agent as well as the principal before a notary public, and that powers of attorney must be printed in 12 point type and must contain the exact wording of the "Caution to the Principal" and "Important Information for the Agent" prescribed by the statute alerting the principal to the breadth of the powers that the principal is granting and notifying the agent of the fiduciary duties that the agent is assuming.
The new law provides that execution of a power of attorney revokes all prior powers of attorney executed by the principal unless the principal expressly provides otherwise.
The new law makes all powers of attorney durable – they remain effective after the principal’s incapacity unless the power expressly provides that it is terminated by the principal's incapacity.
An agent may be granted power to access the principal’s medical records and to make decisions concerning payment of medical bills in compliance with the Health Insurance Portability and Accountability Act. The agent is not empowered to make health care decisions on the principal’s behalf; a separate health care proxy should be executed for that purpose.
A special Statutory Major Gifts Rider must be used and witnessed, like a will, by two disinterested persons in addition to the acknowledgement before a notary public if the agent is to be empowered to make gifts to individuals and charities beyond $500 per year for any recipient and if the agent is to be empowered to make gifts to the agent. Title Insurers may also require the statutory major gifts rider to be included in powers of attorney to be used for real estate closings.
Unless explicitly provided for in the power of attorney, an agent is not entitled to compensation for service as agent but may be reimbursed for expenses.

The statute applies to all powers of attorney executed in New York, but provides that a power of attorney executed in another jurisdiction in compliance with the laws of that jurisdiction is valid in New York, even if the principal lives in New York.

The law does not apply to powers of attorney granted by corporations and other legal entities. Although the law contains no exceptions for routine commercial and business transactions, we believe that it is meant to apply only to powers granted by an individual relating to his personal affairs and not to documents creating agency relationships in business affairs such as corporate proxies and an IRS form power of attorney granted to an attorney or tax agent. Customarily, commercial powers of attorney have not been acknowledged before a notary public, and the prescribed cautionary statements are inappropriate for many agency relationships in commercial and business matters such as a corporate proxy or a power of attorney granted by a corporate director authorizing another individual to sign a registration statement.

Powers of attorney executed before September 1, 2009 remain valid. However, because the new law provides that execution of a power of attorney revokes all prior powers of attorney executed by the principal unless the principal expressly provides otherwise, individuals signing powers of attorney should be careful that they do not inadvertently revoke prior powers of attorney.

A technical corrections bill passed by the New York State Assembly would address some of the points highlighted in this advisory. There can be no assurance that the bill will ultimately become law or correct all of the difficulties created by the new rules.

Questions regarding this advisory should be directed to James Gadsden (212-238-8607, gadsden@clm.com) or Jinsoo Ro (212-238-8833, ro@clm.com).

Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2010 Carter Ledyard & Milburn LLP.
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