When I first began practicing law, the most common use of a power of attorney (POA) occurred when the buyer and/or seller of real property could not attend a closing and needed to designate a third party (bank or otherwise) to attend and execute documents on their behalf at a closing. The POA often contained language specifically limiting its use for the specific conveyance of the real property being bought or sold.
It was a common practice that attorneys utilized POA forms that were created by the title companies (their logo and firm name would be imprinted on the form). In fact, many of these forms are still utilized, and over time these POA forms continued to be utilized by attorneys for the financial and estate planning purposes of their clients.
While the POA form described above was more than adequate for the conveyance of real property, it is wholly inadequate if the principal (creator) of the POA has become ill and would like the designated third party (the agent) to handle his or her financial affairs, including estate and/or long term care planning. For example, many of these forms are not durable (do not survive the subsequent incapacity or disability of the principal), and either limit or do not allow for gifting of the principal’s assets. In fact, most of the POA forms issued by the title companies specifically contained a limit to the amount that could be gifted by the agent of $14,000 per person per year. This language, unfortunately, in many instances handcuffs the ability of the agent under the POA to be able to transfer jointly owned real estate from one spouse to another or to transfer assets in excess of $14,000 from one spouse to another or to their children in the event the principal of the power of attorney is unable to handle or make decisions about his or her financial affairs. Without the agent under the POA having the authority to do so, the principal’s spouse, children or other designated agent will be unable to undertake the necessary steps to protect the assets of the senior in the event he or she needs long term care and wishes to apply for Medicaid.
Although one may believe that limiting an agent’s authority in a power of attorney is beneficial in continuing to protect and control one’s life savings, this may not hold true when unforeseen circumstances such as incapacity arise. A POA that provides the agent with limited authority may result in the family of the incapacitated person needing to apply to the court to become the Guardian of the incapacitated person, and also obtain the permission of the court to make any requested transfer/gifts of assets of said person whether for long term care or estate planning purposes. Sadly, inadequate powers of attorney are often a major contributing factor for the commencement of a guardianship proceeding.
In order to insure that the principal of the POA understands the importance and gravity of granting an agent gifting powers, New York specifically requires the principal to complete a separate rider granting the agent authority to undertake gifting of assets. This rider must be attached to the POA form and delineate all gifting powers granted. Additionally, the rider must be signed by the principal, notarized and witnessed by two independent witnesses.
Clearly, when granting an agent the authority to engage in gifting, it is necessary that the agent selected be someone the principal has the utmost confidence and trust in. Generally, if one is married his or her spouse is selected as agent, with the children as alternate agent(s) if the spouse is not surviving or unable to act.
It is clear that the one page POA form lacks many of the provisions a POA form drafted to reflect the potential future needs of the principal of the POA must have. We live in a very complex world with complex financial issues, financial instruments, including, digital assets; having a POA form that is reflective of these complexities is crucial.
A POA, in my opinion, is one of the most important documents you will ever execute. If you don’t have a POA, you should take the steps to obtain a POA that is adequate. If you have a POA, I urge you to review it and determine whether it contains adequately broad gifting language, including the power to create/revoke trusts and transfer assets to trusts and/or others. Without these provisions your POA may be nothing more than a guardianship proceeding waiting in the wings.
Anthony Enea, Esq. is a member of Enea, Scanlan & Sirignano, LLP, with offices in White Plains and Somers. He can be reached at 914-948-1500. He is a past chair of the elder law section of NYSBA and past president and founding member of the New York chapter of the National Academy of Elder Law Attorneys. He practices exclusively in elder law, wills, trusts and estates and guardianship proceedings.