A major problem with the previous law was that there were no penalties for not accepting a POA, but institutions could be held responsible if they accepted one that was not valid.
On December 15, 2020, under Chapter 323 of the Laws of 2020, New York Governor Andrew Cuomo signed an amendment to the General Obligations Law related to the statutory short form and other powers of attorney. This amendment will become effective on June 13, 2021, 180 days after it was signed into law.
This Alert provides a summary of the changes.
“Substantially Conforms” Replaces “Exact Wording”
In the previous law, an executed power of attorney (POA) was required to contain the “exact wording” provided in the statute. This presented a number of problems with banking institutions because they would not accept an otherwise valid POA due to a minor error, such as a misspelling. This cumbersome rule has been replaced with a new standard. Now, a POA is still valid provided that it substantially conforms with the form requirements. “Substantially conforms” means that a POA is still valid even if the form contains:
(i) an insignificant mistake in wording, spelling, punctuation or formatting, or the use of bold or italic type; or (ii) uses language that is essentially the same as, but is not identical to, the statutory form, including utilizing language from a previous statute.
Elimination of the Statutory Gifts Rider
In the previous law, a separate form known as the statutory gifts rider (SGR) was required to make gifts in excess of an annual total of $500. Under the new law, the SGR is no longer required to be included as a separate form. Now it will be includable in the “Modifications” section of the POA and, absent this provision, an agent is able to make gifts up to $5,000 annually.
Safe Harbor and Penalties
A major problem with the previous law was that there were no penalties for not accepting a POA, but institutions could be held responsible if they accepted one that was not valid. As a result, and in an attempt to protect themselves, many institutions rejected the POA and required their own forms. The new amendment addresses this problem in two ways.
First, institutions are now held harmless from liability provided that they reasonably relied upon a validly executed POA. Second, if an institution does not accept a valid POA, the principal and agent are now able to sue for both damages and attorney’s fees. Both of these amendments were introduced to encourage institutions to accept valid POAs and make it easier for agents to use them, and also to provide principals and agents with recourse if a valid POA is rejected.
Institutions will now have 10 business days to either honor a POA or reject it with written notice to both the principal and the agent. The principal or the agent can reply to the rejection in writing, and the institution is required to respond within another seven business days of receiving the response, either honoring the POA or rejecting it again with reasons.
Execution Requirements
Finally, with the elimination of the SGR, the new POA will now be required to be both notarized and witnessed by two disinterested witnesses, one of whom can also be the person taking the acknowledgement.
For More Information
If you have any questions about this Alert and would like more information about this topic or your own unique situation, please contact any of the attorneys in the Private Client Services Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.