My mother — who is now 77 years old — made me the primary agent under her power of attorney. It’s a 10-page document and very confusing. What am I legally permitted and/or obligated to do? What is my legal exposure if I act on her behalf?
This is a great question, one that not many people ask before they agree to be a power of attorney or before they act as one!
A power of attorney appoints someone (or more than one person) to act on your behalf with respect to specified matters — usually financial and legal — the scope of which is specified in the power of attorney itself. In some states, there is a separate “health care power of attorney”; in New York State it is referred to as a health care proxy, but it is effectively the same thing.
A power of attorney is a very powerful document. It takes effect immediately when the principal (in this case, your mother) signs it and when the agent (in this case, you) signs it, thereby “activating” it. (The agent need not sign at the time the principal signs it.) This document would enable the agent to handle any financial matter on the principal’s behalf as specified in the power of attorney. It gives the agent parallel, concurrent authority with the principal and does not supplant the principal’s own right or authority to do the things specified in the power of attorney, like banking transactions or dealing with her own taxes.
The agent must act in the principal’s best interest and consistent with her testamentary plan (will). There are instances where an agent abuses the power, either intentionally, to divert assets to himself or herself, or to family members, or unintentionally, where the agent thinks he or she is acting in the person’s best interests but they are not.
Despite the potential for misuse, the power of attorney is a very important document to have in place. The power of attorney is designed to help prevent the need for a guardian to be appointed for you if you become incapacitated in the future. Failure to do so could lead to a potential guardianship proceeding in a crisis situation, which can be both time-consuming and costly. Although someone could execute a “springing” power of attorney — meaning it “springs” into effect when the principal is incapacitated — this can ultimately lead to a financial institution requiring proof of incapacity, resulting in a guardianship proceeding anyway, which the power of attorney was intended to avoid. The power of attorney can be designed to have two co-agents acting together or separately, and to have successor agents in case the primary agent cannot act.
You also need to examine the scope of the power of attorney — that is, the actions that the agent and successor agent will be authorized to take. As a result of legislative changes in 2009 and 2010, there are very specific legal rules governing the content of the power of attorney in New York State, as well as what can be changed and what can be added or modified. As an agent, you need to look closely at what you are empowered to do, and what powers you think you might need in the future to act in your mother’s best interests. If you later encounter a task that needs to be done (like hiring home health care aides or filing her taxes), you will ultimately need to commence a guardianship proceeding if the power of attorney does not give you that power and you encounter difficulty in doing this task.
The meaning and definition, and extent, of the powers stated in a power of attorney are detailed in the General Obligations Law, so someone signing a form power of attorney off the internet might not understand the full ramifications of what they are signing as principal or what they are empowered to do as agent. This is one example of why the document is not merely a “form” and why it’s important to consult counsel who can explain the consequences of each power granted under the power of attorney and why it might be needed or not needed for a particular situation.
You also need to check whether the power of attorney allows you to make gifts of your mother’s property, which is usually done for Medicaid or tax planning purposes. Absent that specific authority, you may not make gifts as her agent. And, if you act outside the scope of your authority as agent, or if you fail to keep records and documents to support the actions you are taking, you could be held personally liable.
Agents under a power of attorney should take particular care when restructuring the banking or brokerage accounts of a principal. As noted above, an agent may only act within the scope of the authority granted to the agent, whether that authority is express (as in a power of attorney) or implied. However, transactions undertaken by an agent under a power of attorney are subject to a different analysis than transactions by a principal herself. As an agent, to protect yourself, consider whether your actions could be objectively considered “self-dealing.” For example, if you change your mother’s bank account to a joint account with rights of survivorship with yourself, do you intend to keep the balance of that account when she dies, or return it to her estate? Unless you are her only child, or her will — independently procured by her — names you as her sole heir and disinherits her other children, the joint account could be determined to be a “convenience” account and that you are not entitled to the money. Much costly and time-consuming litigation has been waged over this issue.
Gifts in a principal’s “best interests” are those that carry out his or her financial, estate or tax plans, as demonstrated by the principal’s dispositive plan expressed in his or her will. An agent who engages in this type of self-gifting must still prove it was in the principal’s best interest and carried out the financial, estate, or tax plans, even if he shows the principal intended the gift, to overcome the inherent appearance of impropriety.
Agents under a power of attorney can find themselves in hot water when they act in a way that is contrary to the interests of the principal’s other children or beneficiaries. So, for example, when one child is acting as the primary power of attorney and the other children are upset that they are not in control, not being kept informed about decisions being made, or disagree with those decisions, no matter how prudent. This is when many childhood resentments bubble to the surface and spill into court for therapeutic resolution! An ounce of prevention by communicating with those people can help avoid costly disputes down the road. Again, when executing a power of attorney, or when acting as an agent under power of attorney, it is prudent to seek legal counsel to guide your conduct. Failure to do so can lead to costly litigation down the road.
Alison Arden Besunder is the founding attorney of the law firm of Arden Besunder P.C., where she assists new and not-so-new parents with their estate-planning needs. Her firm assists clients in Manhattan, Brooklyn, Queens, Nassau, and Suffolk Counties. You can find Alison Besunder on Twitter @estatetrustplan and on her website at www.besun