BACK
Print

The New Power of Attorney Statutory Major Gifts Rider

September 2009

After almost a decade of reviewing the current law for powers of attorney ("POA"), the New York State Law Revision Commission (the "Commission") recommended significant changes. In response, the Senate and Assembly overhauled New York State General Obligations Law, Article 5, Title 15, effective September 1, 2009 (the "GOL").[1] The result is a focused statute and a revamped statutory short form power of attorney.

The Commission's final recommendations were issued in the 2008 Recommendation on Proposed Revisions to the General Obligations Law Powers of Attorney ("the Recommendation"). The Commission also issued the 2008 Law Revision Commentary [to] Title 15 of the general obligations law (the "Commentary"). Both of these documents provide insight to the legislative intent behind the amendments.

The GOL amendments recognize the dichotomy of how POA's are used: (1) for everyday financial matters, and (2) for estate planning.[2] This is evidenced in the Commentary, as well as the distinct separation of any transaction remotely related to property transfers, from all other routine financial provisions.

The common theme underlying the amendments is to enhance protection of the principal. In certain areas of the revisions, this was accomplished by making the agent's fiduciary duties to the principal more explicit. In other areas of the revisions, such as gifting and property transfers, this was accomplished by clarifying the powers a principal grants to their agent.

This article focuses on how gifting and other transfer powers are affected by the new law.[3] Since the Legislature not only amended existing sections, but also added new sections (§§5-1501A, 5-1501B, and §5-1507 through §5-1514), a comprehensive analysis of all amendments is beyond the scope of this article.

Among the more significant changes in the law, and the statutory form, are those related to gifting, as set forth in GOL §5-1514 Major gifts and other transfers; formal requirements; statutory form. The Commission's goal was to ensure that principals fully understand and comprehend which powers and authority he or she grants the agent.[4]

For this reason, when a principal wants to give an agent the ability to engage in transfer transactions the Statutory Major Gifts Rider ("SMGR")[5] must be used for all new POA's as of September 1, 2009. The SMGR is defined in GOL §5-1501(14).[6] If an SMGR is not properly executed, a client's estate planning through an agent can be stopped in its tracks, or at least, derailed. Without the SMGR, the agent will be limited to gifts of $500 per donee per year,[7] which basically allows the agent to continue a pattern of birthday and holiday gifts to grandchildren, for instance, and token charitable gifts.

To signify the importance of the SMGR, below is a list of transactions for which the agent has no authority, without a properly executed SMGR:

  • An agent cannot make gifts to themselves. GOL §5-1514(4)(b).[8] This can be vital if the agent is the principal's child, for instance• An agent cannot add, delete or change beneficiaries on insurance policies. GOL §5-1502F(1).[9]
  • An agent cannot add, delete or change beneficiaries on retirement accounts. GOL §5-1502L(2).[10]
  • An agent cannot make changes to joint or totten trust accounts. GOL §5-1502D(1).[11]
  • An agent cannot gift more than $500 per donee per year. GOL §5-1502I(14)..[12]


The driving force behind creating the SMGR was that many of the standard powers in the POA essentially allowed the agent to gift the principal's assets, or otherwise divert them to other persons, without giving sufficient notice that the power was so expansive.

One such example is GOL §§5-1502A(2) and (9), Construction - real estate transactions, which permit an agent to "revoke, create or modify a trust." Similar language is included in §5-1502B relating to chattel, §5-1502C relating to securities, and §5-1502L relating to retirement accounts. Under the old law, if the agent had power over real estate transactions, for instance, the agent would have authority to create a trust for real estate, and thus remove the asset from the principal's probate estate.

Another example is the authority to change beneficiary designations. §5-1502F relating to insurance transactions, and § 5-1502L relating to retirement accounts, allowed agents to change beneficiary designation forms. Again, this gave agents broad authority, often unbeknownst to the principal.

To remedy this, the Legislature significantly changed the GOL construction sections (§§5-1502A through 5-1502O). It recognized that most laypersons do not read statutory construction sections and chose to relocate all gifting related powers, previously under the guise of financial powers, to a section devoted solely to gifting. This is how GOL §5-1514 was created. In turn, GOL §5-1514 requires that all gifting powers must be specifically identified and consented to in the SMGR. The most apparent change to the old statutory POA is the deletion of section (M), which gave authority for "making gifts to my spouse, children and more remote descendants, and parents..."[13] Instead, a more expansive gifting authority is set out in the SMGR.

The SMGR has three major components: (a) Authority to make annual exclusion gifts; (b) authority to make gifts or transfers in excess of the annual exclusion (the "Modifications" section); and (c) authority for the agent to make gifts or transfers to himself.

The first major component in the SMGR is for annual exclusion gifts. The principal must initial the paragraph granting the power to make annual exclusion gifts. There are two noteworthy topics to discuss on the annual exclusion: gift splitting and 529 accounts.

Gift splitting is a common estate planning technique. It allows one spouse to utilize their spouse's annual exclusion, or credit, with consent. GOL §5-1514(6) defines the transfers included within the annual exclusion gifting power. Subsection (a)(2) permits the agent to gift twice the annual exclusion amount to the principal's children, more remote descendant's and parents, if the spouse consents to gift splitting. Subsection (a)(3) expands this power one step further to allow the agent to consent to the principal's spouse's gifts. If the spouse only makes annual exclusion gifts, then the agent can approve gift splitting for any donee, however, if the spouse makes larger than annual exclusion gifts, then the agent can only consent to gifts to the principal's children and more remote descendants. Under the statute, consent to a spouse's larger gifts is part of the default authority when annual exclusion gifts are permitted - no additional gift giving authority must be given. This is helpful when there is an inequality of wealth among spouses.

GOL §5-1514(6) clarifies that annual exclusion gifts include transfers to 529 accounts. However, this authority does not include transfers above the annual exclusion (or two annual exclusions if the spouse gift-splits), such as "spreading an excess contribution [to a 529 plan] over a 5-year period."[14]

The second component to the SMGR is for gifts in excess of the annual exclusion. The statutory form leaves blank the transactions permitted under the power. Therefore, to give any such expanded authority, the principal must identify permissible acts in the Modifications section of the SMGR. Practically speaking, the Modifications section should include a list of enumerated powers that indirectly permit gifting, or could change a testamentary plan.[15] Putting the onus on the principal attempts to ensure that principals do not unknowingly permit transfers of their property to third parties.

The statute gives guidance on what kinds of authority should be listed as Modifications to the SMGR: power to make annual exclusion gifts to an expanded class;[16] identification of gifts in excess of the annual exclusion (i.e. an exact amount or an unlimited amount); authority to "open, modify or terminate" certain bank accounts such as joint, ITF or POD; authority to change beneficiaries on life insurance, or to purchase new policies; authority to change beneficiaries for retirement accounts; authority to create or revise an intervivos trust; or authority to enter into any other transaction that would alter "property interests or rights of survivorship".[17]

One of the goals of the statutory overhaul was to extract certain implied or constructed powers that lived in the shadows of certain express powers. Therefore, GOL §5-1503 provides the sole method of modifying the SMGR. §5-1503 allows the principal to eliminate, supplement, or add provisions, so long as enumerated in the "Modifications" section of the SMGR. Practitioners should be wary of adding or changing provisions in any other manner than that set forth by statute.

The third substantive component to the SMGR is consenting to the agent making transfers to himself. As with the authority to make larger gifts, the principal must identify what types of gifts the agent can give to himself. There is no guidance on how this section should be completed, but if the principal wants to grant the agent unlimited authority to gift to himself, perhaps the following statement would suffice: "all gifts and transfers identified above in section (a) and (b)."

In addition to the substance of the SMGR, certain procedural requirements must be followed.[18] The revised statute provides procedural formalities for the execution of this rider.

The principal's signature must be acknowledged in accordance with the rules for conveying real property, and two disinterested witnesses must sign in accordance with the rules for witnessing a Will under Estates Powers and Trusts Law ("EPTL") §3-2.1(a)(2).[19] EPTL §3-2.1(a)(2) allows the testator to sign or acknowledge his signature in the presence of the witnesses. Also, the SMGR must "[b]e executed simultaneously with the statutory short form power of attorney."[20]

Lastly, for the SMGR to be effective, the principal must not only execute the SMGR, but he must also initial the authorization on the main portion of the POA, which states that the agent has authority to make gifts and transfers as per the terms of the SMGR.[21] By requiring this two-step process of initialing the authorization and completing the SMGR, the legislature added extra precaution to make principals aware that they are in fact granting such powerful authority to their agent. Practitioners should exercise great care to comply with the procedural requirements.

For all attorneys, it is extremely important to understand the changes to the POA statute. Failure to comply with the new requirements could result in unintended consequences for clients. Under the revised law, if a client executes an old statutory form POA after the September 1, 2009 effective date, it will be ineffective for gift giving purposes. It will also be ineffective for transactions not normally associated with gifting per se, such as beneficiary forms, certain bank account changes, and trust creation and revisions. These powers are integral to a proper estate plan.

It is critical that all attorneys review the new law. In additional to the SMGR, there are significant changes to the GOL that affect the POA form, the principal, the agent and third parties. This article does not address all of the revisions. Beginning September 1, 2009, attorneys should seriously consider preparing a POA without a thorough review of the new GOL.

NOTES:
[1] 2008 N.Y. Laws 644.
[2] 2008 Law Revision Commentary [to] Title 15 of the general obligations law (2008), at 28-29.
[3] This article only focuses on the statutory forms.
[4] See generally, 2008 Recommendation on Proposed Revisions to the General Obligations Law Powers of Attorney Commentary of the New York State Law Revision Commission (2008), III.B., at 13-14.
[5] A non-statutory version may be used, but this article does not address the non-statutory forms.
[6] This section is effective September 1, 2009.
[7] [Eff Sept 1, 2009] To continue gifts that the principal customarily made to individuals and charitable organizations prior to the creation of the agency, provided that no person or charitable organization may be the recipient of gifts in any one calendar year which, in the aggregate, exceed five hundred dollars;" NY GOL §5-1502I(14)(2009).
[8] This section is effective September 1, 2009.
[9] This section is effective September 1, 2009.
[10] This section is effective September 1, 2009.
[11] This section is effective September 1, 2009.
[12] This section is effective September 1, 2009.
[13] N.Y. GOL §5-1501(2009)(until 9/1/09).
[14] 2008 Recommendation, IV.G.4.b, at 48.
[15] 2008 Recommendation, III.B., at 14-15; 2008 Law Revision Commentary [to] Title 15 of the general obligations law (2008), at 8-12.
[16] 2008 Commentary, at 35.
[17] N.Y. GOL §5-1514(3)(2009)(effective 9/1/09).
[18] There are other minor procedural requirements discussed in the statute and not specifically set forth herein.
[19] N.Y. GOL §5-1514(9)(b)(effective 9/1/09).
[21] N.Y. GOL §5-1514(9)(d)(effective 9/1/09)).
[22] See statutory short form: "(SMGR) I grant my agent authority to make major gifts and other transfers of my property, in accordance with the terms and conditions of the Statutory Major Gifts Rider that supplements this Power of Attorney." N.Y. GOL §

Reprinted with permission from the September 2009 issue of the Nassau Lawyer. All rights reserved.

BACK TO NEWS & EVENTS

AUTHORS

Sarah B. Rebosa, Associate

RELATED PRACTICE AREAS

Trusts, Estates & Taxation