By Steven A. Schurkman
The power of attorney continues to reign supreme as the single most important estate and financial planning document, as it enables someone to handle the financial affairs of an individual who becomes incapacitated and unable to act for themselves.
New York state adopted sweeping new power of attorney legislation Sept. 1, 2009, and further modifications in September 2010. This legislation drastically changes the power of attorney law previously in effect since the late 1990s and further reinforces the importance of having a power of attorney as part of your estate-planning arsenal.
The importance of executing a power of attorney cannot be overemphasized. Someone who has not executed a power of attorney and who thereafter becomes incapacitated may not be able to access his or her own assets without initiating a court guardianship proceeding.
Guardianship proceedings tend to be expensive, time consuming and unpleasant. The person ultimately selected by the court to serve as guardian may not be someone who the individual would have selected. Guardianship proceedings can be avoided simply by having a power of attorney in place.
Why should most adults have a power of attorney?
Powers of attorney are an integral part of the estate and financial planning process. They are frequently used to authorize the agent to make gifts of the principal”™s property, and under the new legislation, the principal must execute a separate statutory gifts rider to grant such authority to the agent. The primary purpose behind such gift giving is to allow for:
Ӣ Estate tax reduction, which is particularly important to New York state residents leaving more than $1 million to an individual other than a spouse, an amount that is taxable; and
Ӣ Protection of assets and allowing the principal to qualify for government assistance in the event the principal should encounter an uninsured long-term care crisis that requires home care or a nursing home stay, which neither Medicare nor private health insurance cover.
Many people incorrectly believe that they do not need a power of attorney when assets are owned jointly with another person. Although joint ownership of assets often allows the co-owner to access the assets when the other owner becomes incapacitated, joint ownership has legal and tax ramifications that may not be desired. Similarly, people often incorrectly believe that by designating a beneficiary on their accounts (whether on a retirement account, “in trust for” account, annuity or life insurance policy), the beneficiary can represent them in the event of incapacity. However, such beneficiary designations only take effect at the time of the death of the account or policy owner and do not provide for access to the assets during lifetime.
While the law requires that valid powers of attorney signed prior to the 2009 legislation continue to be effective, it is strongly recommended that these older powers of attorney be updated to reflect the new legislation as financial institutions are becoming increasingly more familiar and comfortable with the new form. Over time, the continued use of pre-2009 power of attorney documents may result in delays in their use as financial institutions no longer readily recognize the older forms. This can be particularly harmful to clients in need of immediate action to allow continued management of their financial resources.
Take note that the new power of attorney legislation requires it not only be signed by the principal (i.e. the individual who is granting the authority to act), but for the first time it must also be signed by the agent (i.e. the individual who has been designated to act). It has no legal effect until it has been signed by both parties.
Also be aware that the new form may not be amended or altered in any way, unless properly modified by a separate modifications section of the form. This is particularly relevant for the use of a springing power of attorney document that some people prefer. This is a power of attorney that becomes effective only on a certain date or upon the occurrence of a certain event, for example, upon a physician determining that you are incapacitated. The separate statutory springing power of attorney form provided for under the old law no longer exists. For people who now want such a document, specific language must be inserted in the modifications section.
The use of a springing power of attorney under any circumstance can be problematic, however, as it requires confirmation that the action allowing the power of attorney to become effective (i.e. spring into effect) has occurred. The requirement to demonstrate to a financial institution that such “springing action” has “sprung” (e.g. the client is now of diminished capacity) mitigates the effectiveness of these documents. An alternative way to have a power of attorney become effective at a later date is to have the principal sign it, but withhold delivery to the agent until the occurrence of a specific event.
In advising clients about powers of attorney, as well as in estate planning generally, attorneys and other professionals need to be very cautious and careful. Documents should be reviewed regularly and updated to comport with current legislation and the client”™s situation.
Steven A. Schurkman is a principal member at Keane & Beane P.C. in White Plains, practicing in the trusts and estates and elder law areas. He can be reached at sschurkman@kblaw.com or (914) 946-4777.
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