On December 15, 2020, Governor Andrew Cuomo signed into law sweeping changes to New York’s General Obligations Law governing powers of attorney (“POA”). The new law is effective on June 14, 2021.
The new law is intended to: 1) simplify the current POA form, which is prone to improper execution; 2) allow for the execution of a POA containing language that substantially conforms to the law, because the current law’s exact wording requirement is unduly burdensome and may be a trap for the unwary; 3) provide safe-harbor provisions for those who, in good faith, accept an acknowledged POA without actual knowledge that the signature is not genuine; 4) allow damages to be recovered from those who unreasonably refuse to accept a valid POA.
The adoption of the bill does not affect the validity of any existing valid statutory short form POA, gift riders, or revocation of a POA that was delivered to an agent before the law’s effective date.
What Constitutes a Valid POA
The old law contained a statutory short form POA which had to be strictly completed in order to be accepted by a third party, such as a bank or credit union. Under the new law any POA which “substantially conforms” to the statutory form must be accepted by third parties located or doing business in New York State unless such third party has reasonable cause not to honor it. Reasonable cause includes a belief that the POA was not properly executed in accordance with the laws in effect at the time it was signed.
A POA will now be valid even if it contains: (a) an insignificant mistake in wording, spelling, punctuation or formatting; (b) bold or italic type; or (c) language that is not identical to the statutory form so long as it substantially conforms with the form. There may be “substantial conformity” even if some clauses that appear in the statutory form are missing or if there is insubstantial variation in the wording of the “Caution to the Principal” and “Important Information for the Agent” provisions.
The new law also modifies the signature requirement for executing a POA. The POA no longer needs to be signed by the principal. A designee may sign the document at the principal’s direction while in his or her presence.
Procedure For Rejecting a POA
The new law prescribes a mechanism for rejecting a statutory short form POA. Not later than the tenth business day after presentation of an original or attorney-certified copy of a statutory short form POA that is properly executed, the recipient shall either: (a) honor the statutory short form POA, or (b) reject the statutory short form POA in a writing that sets forth the reasons for such rejection, or (c) request that the agent execute an acknowledged affidavit stating that the POA is in full force and effect.
Reasons for rejection may include non-conforming form, missing or incorrect signature, invalid notarization, or unacceptable identification. In the event that the statutory short form POA presented is not an original or attorney-certified copy, as part of the initial rejection, the third party must also identify the other provisions of the short form POA, if any, which would otherwise constitute cause for rejection. If the third party initially rejects the statutory short form POA in a writing that sets forth the reasons for such rejection, the third party shall within seven business days after receipt of a writing in response to the reasons for such rejection: (a) honor the statutory short form POA, or (b) finally reject the statutory short form POA in a writing which sets forth the reasons for such rejection. If the third party requests the agent to execute an acknowledged affidavit, the third party must honor the statutory short form POA within seven business days after receipt by the third party of an acknowledged affidavit stating that the POA is in full force and effect unless reasonable cause exists to decline to accept the POA.
The new law contains notice provisions which detail how and to whom the foregoing notices must be sent.
Damages For Rejecting a Valid POA
While the new law is intended to make it easier for a POA to be accepted, it may also create issues of fact which will have to be decided by a court in a special proceeding. Specifially, the new law provides that a court can award damages, including reasonable attorneys’ fees and costs, if it finds that the refusal to accept a properly executed POA was unreasonable.
Protections For Accepting POAs
The new law offers additional protection for third parties who in good faith act on an acknowledged POA. Unless the third party had “actual knowledge” that a signature was not genuine, it may rely on the presumption that an acknowledged signature (verified before a notary public) is genuine. Third parties are also protected against void, invalid, or terminated POAs unless they had actual knowledge of same.
A person who is asked to accept an acknowledged POA may request, and rely upon, without further investigation:
(1) an agent’s certification under penalty of perjury of any factual matter concerning the principal, agent or POA; and
(2) an opinion of counsel as to any matter of law concerning the POA if the person making the request provides in writing or other record the reason for the request. An opinion of counsel must be provided at the principal’s expense unless the request is made more than ten business days after the POA is presented for acceptance. It should be noted that this new “safe harbor” provision is not included in the new section of the law which establishes the procedure for rejection of a POA.
A person who conducts activities through employees is without actual knowledge of a fact relating to a POA, a principal, or an agent if the employee conducting the transaction involving the POA is without actual knowledge of the fact after making reasonable inquiry with respect thereto.
If a third party conducts a transaction in reliance on a properly executed statutory short form POA, the third party shall be held harmless from liability for the transaction.
Elimination of Statutory Gift Rider
The new law eliminates the Statutory Gift Rider to the POA. This rider was needed in the past to, among other things, open, modify or terminate a joint account or an “in trust for” account. Now, the principal can authorize transactions on these types of accounts by expressly stating the agent’s authority in the Modifications section of the POA.
Other Technical Amendments
The new law also contains several technical amendments which expand an agent’s power to make aggregate gifts in a calendar year from the current $500 limit to $5,000 without requiring a modification to the form; clarify an agent’s obligation to keep records or keep receipts; and clarify the agent’s authority with regard to financial matters related to health care.
While these amendments strive to simplify New York’s power of attorney law, the law remains complex and legal counsel should be consulted to assist in drafting, interpreting, accepting and rejecting powers of attorney.