Power of attorney forms—that New Yorkers rely on to protect their financial and legal interests should they become medically incapacitated—are “too complex and prone to improper execution,” according to the New York State Bar Association.
The State Bar Association proposes legislative changes to the existing New York power of attorney law, simplifying the forms and imposing monetary penalties on banks and other financial institutions that ignore them.
“Designating a power of attorney is intended to give individuals peace of mind. Unfortunately, the current form is problematic because banks and other financial institutions may refuse to honor a legitimate power of attorney form based upon technicalities in completing them,” said New York State Bar Association President David P. Miranda of Albany (Heslin Rothenberg Farley & Mesiti). “The proposed changes will help clarify the intentions of individuals signing the power of attorney form,”
“The current form is needlessly complex,” said Ellen G. Makofsky of Garden City (Makofsky & Associates), who concentrates her practice on elder law. “I have clients whose modified power of attorney form is longer than the wills that I prepared for them.”
Makofsky chairs the Working Group on the Power of Attorney, whose report was approved by the State Bar’s House of Delegates on January 29. It includes representatives of five Association sections: Elder Law and Special Needs, Trusts and Estates, Business Law, Real Property Law and Health Law.
Among the Working Group’s findings and recommendations:
1. “The Power of Attorney form is too complex and prone to improper execution.”
The current power of attorney (POA) form is a multi-part document that consists of an initial POA form and a statutory gifts rider (SGR). Both forms have different signing requirements and allowable modifications.
There can be “significant and severe repercussions if defect(s) in the forms’ preparations or signing are not discovered until after the principal suffers an incapacity,” the report says.
Recommendation: “Eliminate the complicated POA and SGR and revert back to a simpler document.”
2. “The exact wording requirement is unduly burdensome and becomes a trap for the unwary.”
Current law requires that the POA form contain the exact wording provided by the statute.
Recommendation: The validity of a power of attorney should be determined by a “substantial compliance” standard.
3. “There are no sanctions for financial institutions or others who unreasonably refuse to accept a valid power of attorney.”
The current remedy to compel banks and other financial institutions to accept a valid power of attorney form is “to bring a burdensome and expensive special proceeding” in court. But even if a judge orders the financial institution to recognize a valid power of attorney, the judge cannot impose sanctions against the financial institution. The report calls the remedy “totally inadequate.”
The state law was changed in 2008 and 2010 to require banks and other institutions to recognize legally valid power of attorney forms.
Despite that legal requirement, the report found, “many banks and financial institutions still mandate that their own forms be used because there are no sanctions for failing to honor a valid Statutory Power of Attorney.”
Recommendation: “Allow a court to award damages, including reasonable attorney’s fees and costs if the court finds that a third party acted unreasonably in refusing to honor the agent’s authority under the Statutory Short Form Power of Attorney.” In order to balance the equities and reduce the burden on the third party institution presented with a power of attorney, the Task Force has recommended a number of provisions [including the] provisions whereby a third party can be held harmless if it, in good faith, accepts an acknowledged power of attorney.
The report noted that similar remedies, such as damages and attorney fees, have been adopted in other states. “Banks and financial institutions profitably operate under these laws in those states. We see no reason why the same institutions cannot function under the same provisions in New York state.”
The 74,000-New York State Bar Association is the largest voluntary state bar association in the nation. It was founded in 1876.
Contact: Lise Bang-Jensen
Director, Media Services and Public Affairs