Press-Republican

July 24, 2013

The Law and You: July 24, 2013

By PENNY CLUTE, The Law and You
Press-Republican

---- — A power of attorney is frequently used to authorize another person to act for you in financial matters.

It can be very helpful if you are not able to handle your own affairs. Many family and friends, however, worry that their loved one’s power of attorney is being misused.

New York General Obligations Law sections 5-1501 to 1514 cover powers of attorney and provide what is called a “statutory short form power of attorney.”

SOMEONE YOU TRUST

It is so easy to prepare a power of attorney that the person granting it does not always appreciate how much power they are giving away. New York law was revised in 2009 to require clear warnings to both the person granting the power of attorney (the principal) of what is being given up and to the person named in it (the agent) of the responsibilities that go with it.

The power of attorney can be broad or limited, as the principal prefers. It may be for just a single transaction, like a closing, or give complete authority over all financial matters.

Many powers of attorney are called “durable,” meaning that they continue in effect after the principal becomes incapacitated. When the principal is ill or aging, that is often the purpose of granting one — knowing that someone else will take care of things once you no longer can. 

A power of attorney ends when the principal dies.

In giving someone your power of attorney, you want to choose someone you trust. As the form cautions: “You give the person you choose ... authority to spend your money and sell or dispose of your property during your lifetime without telling you.”

That’s a lot of power, and it can be abused.

‘IN BEST INTEREST’

Sadly, not everyone who is nice to you is trustworthy. This may not be realized until that person uses the power of attorney to take your money or assets.

The designation does not give the agent the right to take your property for themselves. By law, the agent must always act in the “best interest” of the principal. The agent must also keep the principal’s property separate from their own and keep a record of all transactions done with the power of attorney. It allows the principal to appoint a “monitor,” with authority to request these records.

A power of attorney becomes effective on the date that the agent signs it. In all powers of attorney signed on or after Sept. 1, 2009, it is clear that the agent can make gifts of only minimal amounts, totaling up to $500 per year.

The principal can choose to grant greater gifting authority to the agent by initialing a special box on the Statutory Short Form Power of Attorney and at the same time signing a Statutory Gifts Rider.

Even with older powers of attorney that allow larger gifts, the agent must still act in the principal’s best interest. The power of attorney does not change the principal’s property into the agent’s. The money and assets still belong to the principal, and that agent must act as a “prudent person dealing with the property of another.” 

Thus, gifts to the agent or others still must be in the best interest of the principal.

NOT TOTAL CONTROL

A power of attorney does not give the agent authority to make health-care decisions. It is only for financial matters. In New York, granting another person the right to make health-care decisions comes under the Health Care Proxy Statute, Public Health Law section 2981.

Having another person’s power of attorney does not make you all-powerful and does not give you total control over that person and their money. You are required to make decisions as if you were the principal, applying the person’s best interests, not your own.

An agent has a special fiduciary relationship with the principal. Civil legal action, and possibly criminal charges, can be brought against agents who use a power of attorney to take money or assets they are not entitled to.

Certain people can request records of an agent’s transactions. The police or adult protective agency can investigate reports of abuse or neglect.

If there are questions about the agent’s actions, the principal’s spouse, child or parent, as well as those who have the right to ask for records, can bring a “special proceeding” in court.

Penny Clute has been an attorney since 1973. She was the Clinton County district attorney from 1989 through 2001, then Plattsburgh City Court judge until she retired in January 2012.