Problems with New York’s New Power of Attorney Law

Problems with New York’s New Power of Attorney Law


New York enacted a new power of attorney law in 2008, effective September 1, 2009. The new law contains major changes relating to both the content and the execution of the power of attorney form, including an acceptance by the agent. If a principal wants his or her agent(s) to make major gifts, it will now require a second form, called a Statutory Major Gift Rider (SMGR, affectionately pronounced “smugger”), which has different execution requirements. The law also creates specific fiduciary responsibilities for the agent. Unfortunately the law is full of ambiguities and inconsistencies. Where previously a simple document could be signed by a layperson and notarized, the new form is lengthy, complex and full of traps for the unwary, including attorneys who are not thoroughly familiar with all the nuances in the law. The complex form prevents the vast majority of people from now having available a simple statutory form. The new law can be found at Chapter 644 of the Laws of 2008 amending Article 5 of the New York General Obligations Law sections 5-1501 et seq.  
 
The biggest ambiguity is when is it required to use a simple power of attorney, a power of attorney with modifications or a SMGR. The inclusion of “changes in interests in property” exclusively in the SMGR makes it confusing as to where to appropriately add specific modifications. The modification section of the statutory form states, “However, you cannot use this Modifications section to grant your agent authority to make major gifts or changes to interests in your property. If you wish to grant your agent such authority, you MUST complete the Statutory Major Gifts Rider.” NY G.O.L. §5-1513(1)(g) (Emphasis added). Did the drafters mean a change in interests in property done without full and adequate consideration, as in a gift? It is certainly not what they wrote. Doesn’t almost any transaction involve a change in a property interest? What if you don’t add anything to the power of attorney, but rely on the list of powers in the form and the corresponding construction sections of the statute? 
 
Let’s take for example a simple sale of a piece of real estate. That certainly is a change in your property interest. If the principal initials the section of the form in NY G.O.L. §5-1513(1)(f)(A) for real estate transactions that certainly should cover it. However, what if the title company requires, as many do, a specific reference to the property that is to be sold. Then you would need to put a provision in the modification section. But here you run into two specific problems. First, if the principal wishes to limit the power of attorney to a specific piece of property and she initials section (f)(A) and includes a specific modification, she has just included an inconsistent provision, and NY G.O.L. §5-1503(3) only allows you to make “some additional provision which is not inconsistent with the other provisions of the statutory short form power of attorney or of the statutory major gifts rider.”
 
Second, if you are not limiting the real estate transaction provision but supplementing it with a specific piece of real estate and you put the provision in the modification section of the power of attorney, you have now created a change of a property interest in a section where it is specifically prohibited. Have you thereby created a “non-statutory” power of attorney? Then you are at the mercy of the title company, because under the statute the title company can be the ultimate arbiter of whether the form must be accepted. NY G.O.L. §5-1504(1)(a)(9) provides that reasonable cause to not honor a power of attorney includes, “the refusal by a title insurance company to underwrite title insurance for a transfer of real property made pursuant to a major gifts rider or non-statutory power of attorney that does not contain express instructions or purposes of the principal.”
 
There is another problem with the provision for successor agents. NY GOL §5-1508(2) provides “A principal may designate one or more successor agents to serve if every initial or predecessor agent resigns, dies, becomes incapacitated, is not qualified to serve or declines to serve.” (emphasis added). But what if you want one particular successor agent to replace one particular co-agent (rather than wait until every agent is unable to serve). Can you put this instruction in the modifications section. If you change the section on agents and successor agents, you have again created a “non-statutory” form which is virtually unenforceable.
 
One of the worst traps in the new law is the default regarding revocation. NY GOL §5-1511(6) provides, “Unless the principal expressly provides otherwise, the execution of a power of attorney revokes any and all prior powers of attorney executed by the principal.” If a bank has you execute a form for a specific account, have you now revoked all prior powers of attorney?
 
The list of problems could go on. The legislature has its work cut out for it. New York needs a clear and simple power of attorney law. It should highlight for the principal the authority of the agent in order to prevent potential financial abuse. However, it should not be so complex as to hinder the simple execution of a form that will be widely acceptable and enforceable.