A Power of Attorney is a very important and useful estate planning tool. But it is also a very dangerous one. A Will is effective only upon your death and then only when approved by the Surrogate’s Court. But a power of attorney is effective upon proper completion. It enables the person to whom it is given to act on one’s behalf in matters both personal and financial. Think of the consequences of that statement. If accepted by your bank, the person who is given the Power of Attorney (called variously an “agent” or an “attorney-in-fact” [although not necessarily an actual attorney]) can withdraw cash from your bank account as you could. He or she could also execute a deed on your behalf transferring your ownership in real property to another. In other words, your agent will have a lot of control over your finances, and it is crucial that you trust him or her completely.
Why would you ever give someone such broad powers over your property? Because you trust that person and the law requires that person to act in your best interests, just as you would do on your own. It is also a great convenience when you are unable to do a relevant transaction yourself because you are away or incapable of acting on your own behalf. It is this latter reason that makes the Power of Attorney a powerful estate planning tool. Let’s suppose you become incapable of acting on your own behalf due to illness or similar incapacity. A so-called “durable Power of Attorney” allows your agent to act on your behalf. The alternative in the case of incapacity might be a formal guardianship proceeding in the Supreme Court to appoint a guardian for you and that proceeding can be costly and time-consuming.
There are several types of powers of attorney: the limited power of attorney (one limited in scope or time or both); the durable power of attorney (one that continues for an unspecified time even if you become incapacitated); and the springing power of attorney (one that becomes effective only upon the happening of a specified event, for example when you become incapacitated, however that may be defined). All Powers of Attorney end at your death, or when you revoke them. It is safe to say that the durable Power of Attorney is the one that is most commonly used for estate planning purposes.
The abuses of a Power of Attorney could fill volumes. In fact, they do “fill volumes” – in the case law of New York. A few examples may be illustrative.
- A very wealthy philanthropist and heiress was forced to live well below her means despite her great wealth, while her son and attorney (who jointly held her power of attorney) enriched themselves and looted her estate.
- Standard military practice requires mobilized soldiers to be supplied with Wills and Powers of Attorney by their unit JAG officer. Your writer can now confess that when doing the such legal and family assistance for mobilized members of the New York Army National Guard during Operations Desert Shield and Desert Storm he violated military doctrine when he refused to allow a few soldiers to sign Powers of Attorney over to recently acquired significant others. The danger was too great that when that soldier returned from Kuwait his or her significant other would have disappeared and so would the balance of that soldier’s bank account.
Here are New York’s statutory areas over which a Power of Attorney may be used (the list is not exhaustive):
– real estate transactions;
– chattel and goods transactions;
– bond, share, and commodity transactions;
– banking transactions;
– business operating transactions;
– insurance transactions;
– estate transactions;
– claims and litigation;
– personal and family maintenance, including gifts;
– benefits from governmental programs or civil or military service;
– health care billing and payment matters; records, reports, and statements;
– retirement benefit transactions; and
– tax matters.
Some points to ponder when consulting with your estate planning attorney:
– do you trust the person you are giving such powers;
– consider appointing more than one agent who must act together;
– check with your financial institutions. All attorneys have horror stories of perfectly valid Powers of Attorney, ones done on statutory approved forms being rejected by banks because they did not meet the banks’ requirements. May a bank do this? Technically no, but it is common practice nevertheless;
– make your intentions clear to both your attorney and to your new attorney-in-fact;
– understand each power you choose to give your attorney-in-fact; and
– consider some sort of oversight over the activities of your attorney-in-fact.