Hello, and welcome to the New York Senior Information Line sponsored by the New York State Department of State Division of Consumer Protection, the State Office for the Aging and the Harry & Jeanette Weinberg Center for Elder Abuse Prevention at the Hebrew Home at Riverdale. Each month, we bring you news you can use to be a smart senior in your everyday life. And remember, the information you hear on this phone line - - and more - - is also available online at www.nysconsumer.gov.
The Power of Attorney reigns supreme as the single most important estate and financial planning document. It enables someone to act for an individual who becomes incapacitated and is unable to act for themselves. In a Power of Attorney, one person, known as the Principal, appoints one or more individuals, known as Agents, to act on behalf of the Principal and represent his or her interests. Powers of Attorney can be limited in scope, such as only permitting an Agent to sign checks on a bank account of the Principal, or broad enough to allow the Agent to do almost anything the Principal could otherwise do.
The importance of executing a Power of Attorney cannot be overemphasized. Someone who has not executed a Power of Attorney and who thereafter becomes incompetent or "non compus mentis" may not be able to access his or her own assets without initiating a court guardianship proceeding. These proceedings tend to be expensive, time consuming and unpleasant, and the person ultimately selected by the Court to serve as Guardian may not be someone who the individual would have selected. Guardianship proceedings can be avoided simply by having a Power of Attorney in place.
Many people erroneously believe that they do not need a Power of Attorney if their assets are owned jointly with another person. Although joint ownership of assets often allows the co-owner to access the assets when the other owner becomes incapacitated, joint ownership has other legal and tax ramifications that may not be desired. For example, when the co-owner of a joint account dies, the surviving owner inherits the entire account irrespective of the terms of the decedent's Will, which might direct that the assets be distributed to others. This could be avoided by using a Power of Attorney that ceases to have effect upon the Principal's death, thus allowing the Principal's account to pass according to the Principal's estate plan rather than being automatically distributed to the surviving joint account owner.
Similarly, people often incorrectly believe that by designating a beneficiary on their accounts (whether on a retirement account, "in trust for" account, annuity or life insurance policy), the beneficiary can represent them in the event of incapacity. To the contrary, beneficiary designations only take effect at the time of the death of the account or policy owner. If the account or policy owner becomes incapacitated, the designated beneficiary would not be able to legally access the assets at that time. However, a Power of Attorney executed by the owner of the account or policy in favor of the beneficiary would allow the beneficiary to access the assets during such owner's lifetime, should he or she become incapacitated.
Powers of Attorney are a key part of the estate and financial planning process. They are frequently used to authorize the Agent to make gifts of the Principal's property. The primary purpose behind such gift giving is to allow for estate tax reduction (which may be particularly important to New Yorkers where estates bequeathed to an individual other than a spouse are taxable if they exceed 1 million dollars in value) or to protect assets and allow the Principal to qualify for Medicaid in the event the Principal encounters an uninsured long term custodial care crisis which requires home care or a nursing home.
New York State adopted sweeping new Power of Attorney legislation concerning financial decision-making which took effect on September 1, 2009 and was subsequently modified in September 2010. The new legislation significantly changed the existing Power of Attorney law which had been in effect.
The new Power of Attorney law requires that the Power of Attorney not only be signed by the Principal, but for the first time it must also be signed by the Agent. The Principal and the Agent do not have to sign the Power of Attorney at the same time, but the document will have no legal effect until it has been signed by both parties with their signatures duly acknowledged before a notary public.
Under the new law, if the Principal wants the Agent to have the authority to make gifts, the Principal must execute a separate Statutory Gifts Rider. This is a separate form which supplements the new Power of Attorney document. In this Rider, the Principal can authorize the Agent to make gifts of the Principal's assets in an amount limited to the annual gift tax exclusion amount (currently $13,000 per person per annum), or in unlimited sums, including expressly authorizing the Agent to make gifts to him or herself if the Principal further directs. In order for the Gift Rider to be effective, the Principal's signature must be acknowledged before a notary public as well as by at least 2 separate witnesses.
The new Power of Attorney law affords substantial additional protections to the consumer. While Powers of Attorney executed prior to the September 1, 2009 effective date of the new law continue to remain effective, it would be wise to contemplate executing a new Power of Attorney. The new Power of Attorney will become the document most recognizable by financial institutions doing business in New York State, and it can be better tailored to the consumer's particular needs.
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