What A Power Of Attorney Is
A Power of Attorney refers to an authorization for one person to manage another person’s money and assets. Officially, it is a legal document in which a person explicitly grants that authority to another. This authority can be terminated in many ways and almost at any time. It is usually used to facilitate transactions for incapacitated people. The authority is tied to the document. The document is valid only if it is in the correct form and is executed properly. Details matter and determine whether someone benefits from this legal convenience or must endure unnecessary legal proceedings.
Proper form and execution are key. Good legal guidance is, therefore, essential. New York State has changed the law twice in the 21st Century. The most recent change became law in December of 2020. The December 2020 change is not effective until June of 2021. In general, the legal changes concern the exact proper form and execution. The controlling law is the New York General Obligations Law, Article 5, Title 15.
- Principal: The person who gives someone else the authority. This person must act for his or her self and must be at least 18 years old.
- The 2020 law allows a Principal to authorize someone to sign on the principal’s behalf.
- Agent: The person who receives the authority. This person has a fiduciary duty to the principal. There can be more than one, but all must be at least 18 years old.
- Capacity: The ability to understand the consequences of a power of attorney and the authority of a person to act as agent. A Principal must have capacity.
- Monitor: The person who supervises the agent and guards against abuse.
- Durable Power of Attorney: The authority begins immediately and remains in effect when the Principal loses capacity. If not durable, then the authority ends at incapacity or begins at a specified time or event.
Who Should Use A Power Of Attorney
Usually, a Power of Attorney is most useful as a person becomes elderly. Old age far too often involves diminishing capacities and increasing challenges to everyday life. Unfortunately, age isn’t the only worry. Illnesses and accidents can easily cause money management trouble. Sometimes, however, a Power of Attorney can simply be a convenience for a busy or unavailable Principal. Authorizing an agent does not prevent a Principal from acting on his or her own behalf.
Responsible life planning should include this document. Anyone who wants to avoid future problems and prevent unnecessary legal proceedings should use a Power of Attorney. It is simply a major convenience that gives a person one less thing to worry about. In addition, it can be used in many places and for many things.
Who Should Be An Agent
Only someone the Principal trusts should be an agent. Although a Principal with capacity can terminate a Power of Attorney at any time, a dishonest conniving person can do much harm as an agent. Installing someone trustworthy will avoid stress. A trustworthy agent is especially important in the case of a durable Power of Attorney. This is when the Principal no longer has capacity and cannot terminate the authority on his or her own. Court challenges are always possible, of course. But life is always better and easier out of court. Smart planning will prevent future legal issues and allow for maximum use of this legal convenience.
Where And When To Use A Power of Attorney
- Real Estate Transactions
- Including rent payments
- Purchase and Sale of Goods
- Stocks and Bonds
- Business Operations
- Insurance Matters
- Personal Finances
- Government Benefits
- Medical Bills and Records
- Retirement Finances
A Principal can make the authorization as broad or as narrow as they want. The Principal can also authorize multiple agents to perform different functions. What’s important is that the Principal is completely in charge in the crafting of the Power of Attorney.
Form And Execution
“My kingdom for a horse!” Law and legal documents often involve the most intense scrutiny of the most trivial matters. When it comes to a Power of Attorney, the words on the document are specified by law. As for execution, the Principal and Agent must both sign and date the document and have it notarized. They don’t need to sign at the same time, but the document is not effective until all parties have signed. The changes in the law have not changed the execution. But the content requirements vary depending on the date.
From 2010 through 2021, New York law required a Power of Attorney to contain the exact language required by the statute. Therefore, a document lacking the exact words lacked the intended authority. Starting in June of 2021, the document only has to “substantially conform to the wording” rather than matching exactly. Unfortunately, that phrase does not have a more precise meaning other than what will result form inevitable lawsuits. However, small inconsistencies in language will no longer derail an attempted Power of Attorney. But the document must still be typed in 12 point font or similarly written.
More 2021 Power of Attorney Simplifications
- Presumption of validity
- Starting in June 2021, Powers of Attorney are presumed valid. Unreasonable rejections will allow for money damages, attorney’s fees, and monetary penalties.
- Higher gift maximum
- The 2020 law allows up to $5,000 in authorized annual gifts. The 2010 form and law limited authorized gifts to $500. This meant that a Principal could not authorize an agent to give gifts over $500 a year in value with a simple Power of Attorney. The Principal needed to fill out a statutory “gifts rider” that specifically authorized a higher amount of gifts. The gift rider complicated things and even required witnesses in addition to a notary.
- No more gift rider
- Beginning in June of 2021, gifts over the maximum amount no longer need a separate statutory authorization. These gifts simply need to be put in the Modifications section
- A Principal can authorize someone (not the agent) to sign the document on the Principal’s behalf.
2021 POA Complications/New Requirements
- Two (2) disinterested witnesses must also sign the power of attorney
- These witnesses cannot be agents or gift recipients
What’s Not Included
A Power of Attorney is very useful, but it is not an absolute life plan solution. A Principal uses it to give an agent authority only over financial matters. The average person has a few more concerns. This authority does not cover health decisions, funeral plans, and testamentary matters. Those issues involve other documents and different legal guidance. Regardless, the best advice is to get started on these documents early and prevent future issues.