The durable power of attorney is a very important tool in estate, Medicaid, and financial planning. It does not take long to prepare and is easy to execute, yet so many people do not have one. Very often this document is considered when it is too late, i.e., when the individual is incapacitated and is not legally able to execute one.

The durable power of attorney enables an individual, called the "principal," to choose a trusted agent to handle his or her financial affairs when he or she is incapacitated. It is called "durable" since it continues in effect during the principal's incapacity. The alternative to managing financial affairs when incapacitated is a time-consuming and costly guardianship petition.

Two important planning strategies prove the value of these powers. First, the durable power of attorney allows an agent to make gifts. This power is not enumerated on the standard Blumberg form and must be specifically written in to apply. The courts have held that the gift- giving power does not fall within the "all other matters" power which is now box (M) on the form. With a specific direction on the form, the agent could continue the gift-giving strategy that the principal had started and effectively reduce his taxable estate. Or, the principal could give the agent the power to make annual exclusion gifts to children or other family members. If a principal wishes that an agent be able to make gifts to himself, that power should also be spelled out. Remember, the agent is a fiduciary and will be held accountable for his or her actions.

Second, the durable power of attorney allows an agent to do Medicaid planning for the principal. This includes gift giving as described above. Medicaid planning involves the transferring of assets to permit an individual to become Medicaid-eligible for the cost of nursing home care while preserving some assets for the next generation. While competent, an individual is certainly able to do such planning. Under Mental Hygiene Law Sec. 81.21(a), a court may authorize a guardian to transfer a part of the incapacitated person's assets to or for the benefit of another person on the grounds that the incapacitated person would have made the transfer if he or she had the capacity to act. This section codified the common law rule of "substituted judgment."

In Matter of Klapper (Sup. Ct. Kings County, Aug. 4, 1994), Justice Leone held that Medicaid planning was proper under Article 81 on the grounds that the incapacitated person would have made the transfers if competent. The use of a durable power of attorney in this instance avoids the legal wrangling and proof necessary in an Article 81 proceeding.

The New Law

The statute now requires the principal to initial each power granted. Previously, all the powers on the preprinted form were given to the agent unless the principal crossed out a power. The legislature wants the principal to take a more careful and active role in delegating the powers given to the agent.

The statute specifically provides for a notice provision which explains the form and the various powers given to the agent. Exact wording from the statute must be used. It also specifically advises the principal that the document does not authorize anyone to make medical decisions for the principal. Therefore, if a standard Blumberg form is not used, the drafter of the form should be careful to comply with this required notice provision.

The statute also provides that special provisions and limitations to powers may be included in the statutory short-form power only if it conforms to the requirements of Sec. 5-1503 of the New York General Obligations Law.

The statute now requires the principal to initial that he wishes for the power to survive disability or incompetence of the principal. Under the old law, this power survived unless it was crossed out.

With respect to multiple agents, the statute requires the insertion of the word "or" between the two agents' names and the word "separately" to show that the principal wishes that the agents may act alone. If the agents are to act jointly, the words "and" and "jointly" must be inserted.

Execution

The procedure for execution of these documents remains the same. The principal must sign the document before a notary. It is a good idea for the principal to have at least three original copies, as financial institutions generally require an original.

Springing Powers of Attorney

The springing power of attorney law previously found in General Obligations Law Secs. 5-1601 and 5-1602 was amended and renumbered as Secs. 5-1505 and 5-1506. A springing power of attorney is effective at a future time or upon the occurrence of a contingency (i.e., incapacity). The new law also took effect October 1, 1994; however, there is no provision addressing previously executed springing powers of attorney.

Unlike the durable power of attorney, where the principal must initial that the powers are durable, the springing power is automatically durable. The notice requirements and the rules regarding multiple agents are similar to those found in the durable power of attorney statute. A new form is also provided by statute. There are also prescribed procedures for certifying when the power shall take effect. In general, either a doctor must certify that the principal has diminished capacity or a selected individual must certify that a specified event has occurred.

Individuals are sometimes uncomfortable giving an agent the ability to exercise immediate control over their assets as is the case with a durable power of attorney. Therefore, they often wish to use the springing power. Due to the difficulties experienced with doctors certifying incapacity, the springing power has not been the power of attorney of choice for most individuals. In any event, if the principal has any concerns that the agent is going to act improperly, then that particular agent is probably not the right one to choose for the job. In most situations, the durable power of attorney is the better choice.