Now that September 1, 2009 has come and gone, and our children are back to school, we can now concentrate on our assigned task to counsel our clients on the recent changes to the General Obligations Law and the resulting new Statutory Power of Attorney form.
For many clients, Estate Planning is a last minute thought. Typically they will consider drafting a Power of Attorney and have some general plan in mind as to who will be left their assets upon their death. These thoughts, however, rarely cause them to actually follow through with get ting the documents drafted, and to say the least, it often becomes a low priority. Often clients are skeptical about turning over power for someone else (customarily a child) to manage their financial affairs. Parental finances are often a great mystery to their children. Finally, there are those clients who are unnerved by the numerous stories of children, or caregivers, being given a Power of Attorney only to abuse that trust and usurp assets for themselves. So what are we as Estate Planners to do?
The answer is the new Power of Attorney. The new statutory language was drafted to help alleviate the all too common problems of fraud and misuse. So with all the new protections the law has to offer, how then are we to counsel our clients and assure them that the protections offered by this new form will indeed address the abuse problem?
The first, and most significant change to the Power of Attorney, which provides the answer to the “how do I prevent fraud question”, is the new provision for the appointment of a Monitor. This means that clients can now not only appoint an agent to act, but also appoint another person to oversee the named agent. Advising clients of this new provision gives them piece of mind not previously available. This adds a layer of oversight and protection that was not previously available. Clients will need to understand the usefulness of appointing a “Monitor.”
The common query is “why would I appoint someone to ‘check’ on the actions of my appointed agent shouldn’t I just trust the person I am appointing in the first place?” The answer to that question lies in the very stories that make clients skeptical and fearful in the first place. I often advise clients that while the need for a Monitor may not make sense now, while the client is lucid and able to make decisions and stay on top of their own affairs, there will likely come a time when that will change. At that time, the comfort of knowing that there is someone in place who can oversee the actions of the agent who is entrusted with managing the client’s life savings will make the client feel more secure with the decision to appoint an agent today. This reasoning often resonates with clients and calms the fears of insecurity that go with turning power over to another individual.
Another provision of the Power of Attorney, which is new and unique, is the ability to provide compensation to your named agent. It is not mandatory, therefore, I am often asked whether this is a good idea or if it is “fair” to pay an agent for their time. I advise clients that they should not feel obligated to provide compensation to their agents. Many children, friends, and caregivers are happy to be asked to assist. For children especially, this maybe their first glimpse into the financial picture of their parents or the first time they are being asked for help by their parents. Compensation therefore is purely optional and at the personal discretion of the principal.
Another new requirement is that the appointed agent now needs to sign the Power of Attorney, along with the principal (person giving the power of attorney), but only after reading the disclosure provided under paragraph “n.” This new provision makes clients wary. In the past it was comforting for the client to know that their appointed agent would not need to be “put on notice” of the fact that they were appointed power of attorney until such time as their services were needed. There was comfort in the fact that the clients did not need to discuss the often uncomfortable end of life issues that come with disclosing estate planning with their loved ones.
From a practitioner’s standpoint, the fact that the named agent is now asked to read the disclosure and to sign the Power of Attorney helps assure me, and reassure my clients, that the appointed agent will understand the responsibility that comes with being appointed attorney in fact. Prior to the change in the law, attorneys were rarely given the opportunity to speak with the agent to explain their rights and obligations. Usually when the importance of this disclosure is explained to the client, they too often feel more comfortable with giving such notice and the fact that it must be acknowledged and acquiesced to by their agent. You may find, although I have not, that the agent, after reading the notice provision, is no longer interested in taking on the responsibility of the position as attorney in fact. It obviously makes sense to know sooner rather than later that the agent is not willing to take on the added legal responsibilities that being appointed would bring. This allows the client to select some other agent who would be willing to act at the proper time.
Finally there is the new “Statutory Major Gifts Rider” (an addendum to the power of attorney document which grants permission to the appointed agent to make large “gifts” of cash and property to others and/or to themselves in an effort to protect the assets of the principal). Inclusion of this new provision helps to settle those common concerns that arise when an agent accused of misusing funds claims, “but they wanted me to have it.” Now, the nature of any large gifts the principal wishes to make can be expressed. If they want the agent to have, or to make certain large gifts there is documentation in the power of attorney rider. That rider must be signed and provides proof of such decisions; proof, which can be provided to the Court,c if there were ever a contest as to the validity of the gift. Providing the clients with this information and the benefit of the rider is an added bonus. This way if a client is comfortable with making gifts to their children, even in light of the potential ramifications it may have on long-term care planning, then the rider can be signed to provide the appointed agent with documented proof of the clients’ wishes.
I have experienced an increase in the time necessary to counsel clients regarding the new Power of Attorney. Clients need to understand what they are signing, how they can modify the document, and its practical effect. I also find an estate-planning questionnaire to be helpful when working with clients who have never dealt with these issues before. Most clients, although skeptical about handing over power of their financial affairs to another, do find comfort in knowing that there are procedural safeguards that will minimize the instances of fraud and misuse of the Power of Attorney in the future. It is our job as their counsel to use these practical tips to help put their concerns to rest.