Estate planning attorneys who prepare durable New York powers of attorney for their clients often counsel them to exercise care in allowing the use of such instruments because they grant the attorney-in-fact broad and sweeping authority. As a shorthand way of describing a power of attorney, an estate planner might tell a client that it allows the attorney-in-fact to do pretty much anything the client could do. The recent Appellate Division decision in Matter of Perosi v. LiGreci illustrates the accuracy of this shorthand description. In that case, the court held that the authority granted to an attorney-in-fact under a New York statutory power of attorney includes the power to amend an irrevocable trust with the consent of the beneficiaries, pursuant to EPTL 7-1.9.
In 1991, Nicholas LiGreci created an irrevocable trust for the benefit of his three children, including his daughter Linda. Nicholas named his brother, John LiGreci, as the trustee. On April 20, 2010, Nicholas executed a durable New York statutory short-form power of attorney naming his daughter Linda as his attorney-in-fact. The power of attorney included authorization for “estate transactions,” as construed under GOL § 5-1502G and “all other matters,” as construed under GOL § 5-1502N. Nicholas also signed a major gifts rider.
One month after the power of attorney was created, Linda, as attorney-in-fact for Nicholas LiGreci, executed an amendment to the irrevocable trust naming her son, Nicholas Perosi, as trustee instead of her uncle, John LiGreci. New York EPTL 7-1.9 allows the creator of a trust to “revoke or amend the whole or any part thereof” by an acknowledged instrument and with the written consent of all the trust beneficiaries. Pursuant to EPTL 7-1.9, each of the beneficiaries of the irrevocable trust consented to the amendment. John LiGreci did not consent to the amendment, nor was his consent required, as he was not a beneficiary.
Nicholas LiGreci passed away on June 3, 2010, never having personally signed the trust amendment. On July 28, 2010, Linda and her son, Nicholas Perosi, as the successor trustee, petitioned for an accounting from John LiGreci; for the removal of John LiGreci as trustee; and for turnover of the trust assets and records to Nicholas Perosi. John LiGreci moved to set aside the trust amendment, arguing that the trust was irrevocable and Linda did not have authority under the power of attorney to amend the trust. The Supreme Court agreed, holding that a power of attorney is a “forward looking” instrument and does not grant an attorney-in-fact authority to amend estate planning devices created prior to the execution of a power of attorney. The Supreme Court also found that the right to amend or revoke an irrevocable trust is a right that is personal to the creator and cannot be exercised by an agent unless the power of attorney expressly provides.
On appeal, the Appellate Division, Second Department, reversed (Matter of Perosi v. LiGreci, 2012 NY Slip Op 05533, decided July 11, 2012). Justice John Leventhal, in opinion joined by Justices Skelos, Balkin and Lott, explained that the irrevocable trust agreement did not specify any procedure by which the trust could be amended, and therefore EPTL 7-1.9 is applicable and allowed Nicholas LiGreci to amend the trust with the consent of the beneficiaries. Examining the power of attorney granted to Linda, the court quoted Zaubler v Picone, 100 AD2d 620, 621 (2d Dept 1984), in which it stated that “[a]n attorney in fact is essentially an alter ego of the principal and is authorized to act with respect to any and all matters on behalf of the principal with the exception of those acts which, by their nature, by public policy, or by contract require personal performance.” The court listed the “few exceptions” to the powers granted to an attorney-in-fact: the execution of a principal’s will, the execution of a principal’s affidavit upon personal knowledge, and the entrance into a principal’s marriage or divorce. Amending or revoking a trust with the consent of the beneficiaries, on the other hand, was not found to be an act which requires personal performance of a principal. The court, therefore, held that Linda, as attorney-in-fact and alter ego of Nicholas LiGreci, properly amended the irrevocable trust.
The court acknowledged that there may be policy considerations for prohibiting an attorney-in-fact from amending or revoking an irrevocable trust “based upon the premise that a creator knows what is best for his or her trust and overall estate plan.” It concluded, however, that “such a policy is for the Legislature to enact, not the courts.”
Thanks in large part to the efforts of individuals and organizations advocating to curb the epidemic of financial abuse of the elderly, New York Governor, David Paterson, signed into law a broad transformation of Title 15 of the New York General Obligations Law pertaining to Powers of Attorney on January 27, 2009, apparently targeted directly at a reduction in “DPA” or “Durable Power of Attorney Abuse” in New York State.
This new legislation, which was unanimously approved on December 15, 2008 in the senate, is currently scheduled to take effect on March 1, 2009. However, in light of the drastic modifications which this new law portends, many in the legal community are clamoring for a six month reprieve in order to fully digest the implications of this sweeping change. In order to avoid the mass chaos that a retroactive repeal would bring, the new law mercifully provides that these changes do not affect the validity of any power of attorney executed prior to the effective date of this new law. Nevertheless, it is certainly advisable for estate planners and elder law attorneys to familiarize themselves with the new law and incorporate it in into their practice as soon as possible.
Section §5-1501 of the New York General Obligations law, which contains the existing statutory short form power of attorney, has been repealed in its entirety. New Sections §5-1501, §5-1501A and §5-1501B have been added in its place. In the interest of clarity, the new law provides ample definitions for the terms used within Title 15 (see §5-1501); and in order to prevent miscommunication and possible fraud, it also provides that a valid power of attorney must be: (i) legibly typed in no less than twelve-point font, (ii) signed and dated by a principal, (iii) with capacity (as defined within the statute), (iv) in the manner prescribed for the acknowledgement of a conveyance of real property (see §5-1501B).
The most significant change to the law is the establishment of the “Statutory Major Gifts Rider” (“SMGR”), a supplemental document in which the principal may “authorize major gift transactions and other transfers” as detailed in the new §15-1514. Gifting powers may no longer be granted to an agent within the context of a durable power of attorney, instead the principal must sign a SMGR to accomplish this.
The statutory form of SMGR or a non-statutory form may be used. However, if the principal wishes to use any SMGR he or she must so authorize by initialing the appropriate box on the new durable power of attorney form. The practitioner should be mindful that the SMGR will only be valid if it is executed simultaneously with the power of attorney form, and is both acknowledged and witnessed by two disinterested witnesses.
In the absence of a SMGR, the only gifts that the agent, as attorney-in-fact, will be permitted to make on behalf of the principal are gifts which the principal had customarily made to individuals and charities, not to exceed $500.00 per beneficiary, per calendar year (see §5-1502(I)). Obviously, this will not serve to accomplish many significant estate planning objectives.
Another significant change to the statutory form is that it provides that all prior powers of attorney are revoked upon the execution of a new power of attorney, unless the principal affirmatively states the contrary in the “Modifications” section provided. This can pose obvious problems to a distracted or misinformed client, and extreme caution must be taken to insure that estate planning powers are not accidentally revoked by clients when granting limited powers to another individual subsequently.
In order to sign a power of attorney, the principal must have capacity, which is defined by the statute as the “ability to comprehend the nature and consequences of the act of executing and granting, revoking, amending or modifying a power of attorney, any provision in a power of attorney, or the authority of any person to act as agent under a power of attorney” (see §5-1501). All Powers of Attorney are considered durable unless the document expressly states otherwise. Accordingly, the Non-Durable Power of Attorney form has likewise been repealed, and may be replaced by the new statutory form with an added statement indicating that this Power of Attorney should not survive the principal’s incapacity.
The new law provides that particular sections entitled “Caution to the Principal” and “Important Information for the Agent” must be included in the form using prescribed language (see §5-1513). These sections provide enhanced warnings to the prospective principal, emphasizing the significance of executing a durable power of attorney. They also give explicit instructions to the agent with respect to his or her obligations in serving as an attorney-in-fact and a reminder of their fiduciary duties. The agent’s responsibilities are more fully set forth in §5-1505 of the new law, and this section is referenced within the cautionary sections of the statutory form.
In another departure from the old law, prior to use, the power of attorney must also be executed by the agent and acknowledged. This change is likely due to the legislature’s desire that the agent be fully aware and bound by the instructions and warnings which appear on the new form. However, the document need not be executed by the principal and agent simultaneously.
Other significant changes include:
- Third-parties may not refuse to honor a statutory form power of attorney “without reasonable cause.” To avoid confusion, the new law enumerates a non-exclusive list of circumstances which can constitute reasonable cause for third-party refusal to honor a power of attorney; as well as some circumstances that are specifically deemed unreasonable cause for refusal (see §5-1504). One example of unreasonable cause, is the common situation faced by agents encountering financial institutions who only want to utilize their own form of power of attorney, and unjustly refuse to honor a general durable power.
- An agent under power of attorney is not entitled to compensation unless same is expressly provided for within the document (see §5-1506). The statutory form provides a box to be initialed if the agent is to receive “reasonable compensation.” Reimbursement of the agent’s expenses are permitted without an affirmative provision.
- Unless the principal expressly provides otherwise, co-agents must act together. However, even in the absence of an authorization for the agents to separately act, in certain emergency situations, as defined in the statute, one co-agent may serve alone (see §5-1508).
- The statutory form provides a section which provides the principal with the opportunity to appoint a “Monitor” who may compel the agent to produce records, receipts, etc. on a going forward basis (see §5-1509).
- If the agent fails to produce records as required, or other questions arise with respect to a power of attorney, a new special proceeding established under §5-1510 of the new law may be commenced by specific interested parties.
- A power of attorney executed in another state or jurisdiction, in compliance with the laws of that state, is valid and enforceable in New York (see §5-1512).
Practitioners should begin familiarizing themselves with the new statute as soon as possible and begin preparing their new forms. These new requirements concerning power of attorney will undoubtedly require some adjustment by practitioners who are used to the comparatively simple old statutory forms.
Take a look at the new law applicable to powers of attorney in New York. You will have to go to the New York State Legislature search page , type in the bill number (A06421B), select 2008 from the pop-up menu, and check off the box for "Text." The effective date is currently March 1, 2009 - so you have a month to get up to speed!