Do I Have the Capacity? Execution and Agency for Powers of Attorney
Execution of a NYS Power of Attorney
A Power of Attorney (POA) is a legal document that allows an agent to make financial and legal decisions for another person. Depending upon the different authorities granted in the POA, the agent can have sweeping control over an individual’s income and assets. Despite the potential for abuse, anyone over the age of 18 with any income or resources should have a Power of Attorney. When a person is unable to make legal or financial decisions for themselves, their family can pursue securing guardianship. This involves court proceedings which are public, time consuming, and potentially expensive.
Under New York law, capacity to execute a POA is described as the “ability to comprehend the nature and consequences of the act of executing and granting, revoking, amending or modifying a power of attorney, any provision in a power of attorney, or the authority of any person to act as agent under a power of attorney.” Various treatises stress this ability to comprehend. Klipstein’s Drafting New York Wills notes that the law “requires that the principal understand at least in a general way the enormous range of authority granted to the agent.” Unlike a will, this standard for capacity is like that of a contract.
Attorneys’ ethics rules require that lawyers “as far as reasonably possible, maintain a conventional relationship” with a client of diminished capacity. This involves determining capacity and screening situations for potential fraud or undue influence. If a client’s capacity is an issue, meet with them privately. Ask questions to ensure they are oriented to time, place, and location. If sufficient capacity can be established, ensure the client’s understanding of a POA, ability to select an agent, and the authorities granted by the POA.
Acting as an Agent
Agents often ask when to begin using a POA for the principal’s benefit. To answer this question, New York law borrows concepts from the Uniform Power of Attorney Act (UPOAA).
The UPOAA establishes the default rule of durability: if you have a durable POA, the agent’s authority is not voided upon the principal’s incapacity. Essentially, when a person becomes incapacitated, their affairs can continue to be conducted without a medical determination of incapacity. There is disagreement on the issue. Some experts think this default rule of immediate effectiveness/durability of a POA enables fraud. Others argue that if an agent is trustworthy enough to act when there is incapacity, then they are trustworthy enough to act immediately.
The agent of a POA has a fiduciary duty to the principal. This involves fidelity, loyalty, and duty of good faith to the principal. If the principal exhibits diminished capacity, including failure to pay bills, proneness to identity theft/scams, or making unreasonable financial decisions, it may be time for an agent to begin acting on the principal’s behalf. Keep in mind that, as the agent, many cases for a breach of fiduciary duty turn on whether the agent has acted in their own interest as opposed to the principal’s interest.
Our goal is to protect clients and provide them with the tools for proper planning. A POA is integral to estate and financial planning. Despite this, capacity concerns can lead to numerous pitfalls surrounding a POA. Many still use online POA forms, which can result in incorrect execution, or the incorrect granting of certain authorities to agents. An attorney should be consulted to ensure proper execution of a POA. If you feel that a POA is being incorrectly used, or a POA needs to be prepared, please contact a member of our Wills, Trusts & Estates practice.
This publication is intended as an information source for clients, prospective clients, and colleagues and constitutes attorney advertising. The content should not be considered legal advice and readers should not act upon information in this publication without individualized professional counsel.
McConville Considine Cooman & Morin, P.C. is a full service law firm based in Rochester, New York, providing high quality legal services to businesses and individuals since 1979. With over a dozen attorneys and a full paralegal support staff, the firm is well-positioned to right-size services tailored to each client. We are large enough to provide expertise in a broad range of practice areas, yet small enough to devote prompt, personal attention to our clients.
We represent a diverse range of clients located throughout New York State and New England. They include individuals, numerous manufacturing and service industry businesses, local governments, and health care professionals, provider groups, facilities and associations. We also serve as local counsel to out-of-state clients and their attorneys who have litigation pending in Western New York courts. For more information, please contact us at 585.546.2500.