MORE ON "THE LIVING TRUST"

In its most basic terms, the promoters of the Living Trust argue that you should transfer all of your assets to the Living Trust while you are alive. You (or you and your spouse) are the trustees of the trust and manage the trust assets for your own benefit. You can change or cancel the arrangement at any time. In sum, while you are alive nothing has really changed except that your assets are technically owned by the Living Trust, rather than by you as an individual. All of the supposed benefits of the trust come into fruition when you die. The promoters state that your assets automatically pass to your beneficiaries without the delay or expense of probate. The Living Trust also claims to ensure privacy and save thousands of dollars in attorneys fees. Finally, the promoters also mention how the Living Trust will save on estate taxes. Now I attended one seminar where a question was proposed: "Will this work if I have a home in Florida too?" The promoter responded: "Yes, we will hire an attorney in Florida to transfer title to the Living Trust, for a small additional fee, and thus you can avoid probate in Florida." But according to Florida attorney Ronald A. Jones: "The problem is that Florida law provides that a revocable trust is liable for the estate debts of the decedent; and there is a 2 year statute of nonclaim. In other words, if someone dies with a revocable trust, at least theoretically the trust is on the hook for 2 years after the person dies for any debts or claims against the person who died, and if the trustee distributes, or passes out the money to the beneficiaries before the 2 years is up, and that results in the trust not having the money to pay creditors, the trustee is liable to the creditors until the 2 years is up. However, there is an exception to this: if a probate is brought, and the estate is advertised, then the period the trust is liable is limited to 3 months after the first date of the advertisement of the estate. From a practical viewpoint, it makes a great deal of sense to bring a probate, and to close out creditors claims to 3 months after the advertisement, at least if there aren't a lot of bills to pay. Otherwise, the successor trustee would be very foolish to pay the beneficiaries if the trustee might be on the hook for 2 years. So, from a practical viewpoint, most, if not nearly all, revocable trusts in Florida wind up having a probate brought in order to close out creditors claims before the 2 years are up. If a probate is going to be brought to close out creditors claims, then there is not much point to a revocable trust for the sake of avoiding probate." Thus, my recommendation is that if you do decide a "Living Trust" is for you and you have out-of-state assets, I would consult with an "out-of-state" attorney to see if the New York "Living Trust" will work with that out-of-state asset.

THE "LIVING TRUST"

Well, the Power of Attorney is obviously a tool that may or may be helpful when considering one's "estate planning" in the event of disability. Have you read all the local ads for "Living Trusts"? This is different than the "Living Will" which typically is a document that provides instructions about your wishes concerning medical treatments or life-sustaining measures if you have a terminal condition, become permanently unconscious or are in a persistent vegetative state and lack the capacity to make or communicate those decisions. A living will "speaks" for you only when you are unable to communicate your wishes concerning health-care decisions or life-sustaining measures (many of these living wills are being replaced with statutory health care proxies, an issue to be discussed later). But recently, many of you have been hearing about "living trusts". Seminars are being sponsored by attorneys in which a presentation is made, refreshments are served and free consultations are offered. Fees can even be discussed with discounts available if you act within a certain time. Since we have been exploring the new Power of Attorney, let us now explore the "living trust". They are merely an old creature called revocable trusts. Revocable trusts have become increasingly popular in estate planning. Many people believe that by creating a revocable trust, naming themselves as trustees, and transferring their assets to the trust, they will save taxes, simplify the administration of their estates, and save money for their children or other beneficiaries. Unfortunately, these beliefs are not based in fact and are typical of the myths that surround so-called "living trusts." This will be the next topic of discussion.

FINAL THOUGHTS ON POWERS OF ATTORNEY

When representing a principal, the main disadvantage of a Power of Attorney is that it is subject to abuse: although there are now new rules requiring accounting,the use of monitors, execution rules, etc., it still does not have the same ongoing court supervision of the attorney-in-fact as there is in a guardianship. If the attorney-in-fact abuses his or her authority and acts improperly, a court may step in and take action. However, in many cases, the damage is already done, and it is difficult to undo it. Of course, you should take great care in selecting your attorney-in-fact. But I also see the great divisions it creates in families wherein one member is being made attorney-in-fact unknown to other family members. My suggestion is the following: after meeting with the principal, ascertaining their wishes and before executing a Power of Attorney, counsel should notify all family members that would receive notice under the rules regarding the appointment of a guardian. A meeting should be scheduled with all in attendance wherein the principal expresses their wishes and explains why they are executing the Power of Attorney, why a particular person was selected as attorney-in-fact, why certain powers were granted, etc. Let all family members discuss it among themselves and with the principal. Afterwards, then let the principal make their decision. Does this make the process costly? Yes, but, in the long run, it is worth it. I view the Power of Attorney as I view a prospectus for securities under federal securities laws and rules: notice and disclosure is the key!

LANDLORD & TENANT COURT: FOR LANDLORDS

As I was presented this case yesterday in Landlord & Tenant Court yesterday, I forward the advice the Judge gave to the landlord who was appearing pro se. I was representing the tenant and moved to dismiss the action on the grounds the papers were improperly served. My application was granted. Without going into details, there are probably many landlords out there who are knowledgeable, etc. and may be able to handle this process by themselves...but as the Judge advised the landlord in this case, and the following is as close as I can remember to a direct quote: "You are beginning a legal rpocess here by seeking an eviction in Landlord/Tenant Court. I am a Judge, I cannot advise you. But I suggest that before you commence a legal proceeding, you get the advice of a lawyer. Process Servers are not lawyers."

WILLFUL MISSTATEMENTS WHEN COLLECTING UNEMPLOYMENT BENEFITS

A break from Powers of Attorney, as this was a case presented to me and it highlights the importance of notifying the Department of Labor of all full-time and/or part-time employment you were engaged in, on the books or not, while you are applying for a benefits. They can find out so don't hide it. Section 594 of the Unemployment Insurance Law provides that "a claimant who has willfully made a false statement or representation to obtain any benefit ... shall forfeit benefits for at least the first four but not more than the first eighty effective days following discovery of such offense ...". It further provides that the claimant shall be deemed to have received benefits for such forfeited effective days", and that "A claimant shall refund all moneys received because of such false statement ...". Not every false statement subjects a claimant to the penalties provided in sub. sec. 594. A claimant may provide information (s)he believes to be true, which ultimately proves to be incorrect. In such instances no penalty applies. However, if it is established that the claimant was aware of the true situation, but gave false information, or purposely failed to fully disclose the facts, a determination of willful misrepresentation should be made. As the courts have held, "'willful' as used here does not imply a criminal intent to defraud but means 'knowingly' , 'intentionally' , 'deliberately' to make a false statement. (Matter of Vick, 12 AD 2d 120) Thus, for example, a claimant who places "N" in the calendar insert and certifies that "I did not work in employment or self-employment although (s)he knew (s)he had worked two days and received pay is subject to the penalty for willful misrepresentation notwithstanding that the claimant honestly misinterpreted the law and believed the work had no effect on benefit rights (Matter of Vick, 12 AD 2d 120) ". The following is a link to the Department of Labor Standards for making willful misrepresentations:
http://www.labor.state.ny.us/ui/aso/A710.htm#71021

THE ESSENTIAL RULES OF THE NEW POWER OF ATTORNEY

Here are the essentials of the new Power of Attorney Law as prepared by Joan Lensky Robert, Esq:

OVERVIEW OF TERMS AND PROVISIONS
1. Benefits from governmental programs includes governmental regulations,Social Security, military, Medicare and Medicaid.
2. Sign means any mark, including electronic signature, other than if the document will be used to record real property.
3. Statutory Major Gifts Rider (SMGR) must be SIMULTANEOUSLY EXECUTED BY PRINCIPAL AT TIME OF EXECUTION OF POA AND MUST BE INITIALED TO SHOW INTENT.
4. POA is durable unless expressly not.
5. Agent must account to a Guardian if one is appointed.
6. Agent may sign after the principal becomes incapacitated.
7. POA must be in 12 point font and contain the cautionary language and Important info language to be the statutory short form poa.
8. To be valid as to an agent, the agent must also sign. If 2 agents are to act jointly, they must both sign.
9. Other POAs may be used, but they will not be considered statutory POA. However, any POA executed after September 1, 2009 must contain a SMGR to be effective for gifts.
10. Execution of POA: By principal, before a notary, as a deed is executed in NY.
11. Agent must also sign before a Notary, in the manner that a Deed is executed.
12. Statutory Major Gifts Rider (SMGR) is signed by principal before 2 witnesses & notarized
WHAT POWERS DOES THE AGENT HAVE?
13. Powers for banking, retirement, chattel, real property and insurance do NOT include the authority to change beneficiaries or add beneficiaries if there is no SMGR.
14. If agent has a joint account with principal, the agent cannot add or eliminate joint owners or totten trust beneficiaries without SMGR.
15. New accounts may be opened with POA but they may NOT be solely in the name of the agent unless the intent is to make a gift, which may occur ONLY WITH SMGR.
16. No need to explicitly state in POA which estate or trust the agent may act upon for the principal.
17. Agent may continue tradition of gifts to individuals and charities under Personal Relationships BUT ONLY UP TO $500/YEAR without SMGR. Proposed amendments to the POA statute will clarify that the $500 annual gifts is a TOTAL of such gifts aggregated, and that no gifts may be made to the agent absent the SMGR.
18. Agent cannot make health care decisions but MAY REQUEST HOSPITAL BILLS & RECORDS AS AGENT AUTHORIZED TO MAKE PAYMENTS FOR HEALTH CARE.
19. Agent may NOT designate a third party to be the agent under a health care proxy to make health care decisions.
20. Agent may establish intervivos trust and may revoke the trust so long as that power is given in the SMGR.
HAVING THE POA HONORED
21. No third party shall refuse to honor a POA without good cause. Good cause would be the agent’s failure to provide an original or atty or court certified copy of POA, or the third party’s knowledge that there has been a referral to Adult Protective Services, or ACTUAL knowledge that principal is deceased, or incapacitated when POA is not durable.
22. Third party cannot refuse to honor POA by requiring its own form OR because time has elapsed since the document was executed OR because time lapsed between the principal’s executing the POA and the agent’s executing the POA.
23. REVOCATION OF POA: Given to financial institution at the office where accounts are located.
24. Third party may require Affidavit that POA is in full force and effect.
WHAT MUST THE AGENT KNOW ABOUT HIS/HER RESPONSIBILITIES?
25. Fiduciary duties and standard of care that agent owes to principal are set forth:
A. Must act in best interest of principal
B. No commingling of assets
C. Must keep records and be able to present them WITHIN 15 DAYS to a monitor, if appointed, or to the principal or to a coagent or successor agent or to Adult Protective Services or to a Court Evaluator, or GAL or Guardian or Conservator or to the Personal Representative of the estate of the deceased Principal.
D. Agent may be liable for breaches of fiduciary duty if proceeding is brought to compel the agent to provide records.
E. When agent engages in transaction, s/he is acknowledging that Principal is alive, and that agent has authority to engage in this transaction and has no knowledge that POA has been revoked.
26. Agent may RESIGN by giving notice to principal, successor agent, the monitor or guardian. If principal is incapacitated, agent may petition court to resign.
27. Principal may PROVIDE FOR ALTERNATE METHODS OF RESIGNATION in the POA.
28. Agent may be paid for services SO LONG AS POA SO PROVIDES.
29. Agent shall sign: AGENT as agent for PRINCIPAL or PRINCIPAL by Agent.
POTPOURRI OF PROVISIONS:
30. Principal may appoint a monitor to receive financial documents. Monitor does NOT have fiduciary duty.
31. N.Y. GOL 51510:
A special proceeding may be commenced by someone who is authorized to request records but has not received them OR to determine whether POA is valid or if Agent should receive compensation, or to remove the agent or to construe provisions of the POA or to compel a third party to honor the POA
32. POA terminates upon death of principal or its revocation.
33. Agent may no longer act if principal revokes agent’s authority or is spouse of
principal and they become divorced.
34. Principal may request information on his/her finances from agent at any time.
35. When 2 agents are appointed, it is presumed that they may act separately unless the POA is initialed ( ) My agents may act separately.
36. This POA revokes prior POAs unless it indicates that it does not.
37. If the agent is to receive compensation, the Principal must check ( )My agent shall be entitled to reasonable compensation for services rendered.
REVOCATION OF POA:
38. Written, signed and dated revocation must be delivered by the principal to the agent and to any third party that principal believes has received POA or acted upon POA.
39. If POA has been recorded, the revocation must be recorded.
40. Third party must have ACTUAL notice of revocation – recording the revocation is not actual notice to a third party.
41. Agent MUST HONOR the revocation unless the Principal is subject to a guardianship under Article 81 of the Mental Hygiene Law.
MODIFICATIONS
42. Additional provisions may be included, such as how an agent may resign.
43. If this POA is not intended to revoke prior POAs this must be indicated here.
44. Powers such as the power to waive or exercise an elective share or represent the principal’s interests in educational decisions or to express the intent to return home, often used in Elder Law planning, may be granted here.
45. The method of compensation to the attorney in fact may be indicated here.
STATUTORY MAJOR GIFTS RIDER (SMGR)
46. Must be of 12 point font
47. Principal’s signature must be NOTARIZED AND WITNESSED BY 2 WITNESSES, NEITHER OF WHOM IS A PERMISSIBLE DONEE.
48. Standard power: annual exclusion gifts to spouses, children, more remote descendants and parents (or twice that amount if the spouse will split gifts for gift tax purposes).
49. Additional power: A SPECIFIC AGENT is authorized to make the ABOVE GIFTS to him/herself.
50. If gifting above the annual exclusion amount is authorized, that must be specified. The purpose should also be specified (i.e., elder law planning, tax
planning). EX: UNLIMITED GIFT GIVING TO ALL OF MY CHILDREN, INCLUDING TO MY AGENT, ____, in order to effectuate an asset preservation plan. HOWEVER, ANY GIFTS MADE TO MY CHILDREN SHALL BE IN EQUAL SHARES… PROVIDED THAT GIFTS FOR THE BENEFIT OF MY CHILD…. SHALL BE PAID OVER TO A SUPPLEMENTAL NEEDS TRUST THAT I AUTHORIZE MY AGENT TO ESTABLISH FROM MY FUNDS.
EFFECTIVE DATE
51. September 1, 2009 for the repeal of the prior Statutory Short Form Power of Attorney
52. POAs executed properly prior to September 1, 2009 are still valid.
53. Nonstatutory POAs executed AFTER September 1, 2009 MUST STILL HAVE A SIMULATANEOUS SMGR to authorize giftgiving by the agent, and NOT ONLY GIFT GIVING TO HIM/HERSELF, BUT ANY GIFTGIVING.
54. The FIDUCIARY DUTIES are effective for POAS executed prior to September 1, 2009
55. The special proceeding may be initiated to clarify the validity of the document for POAs executed prior to September 1, 2009

MORE PROTECTION IN POWERS OF ATTORNEYS?

The obligations of an agent under a Power of Attorney include record keeping, the obligation to account and to act in the best interest of the principal. Also under the new rules, the principal may appoint a monitor to receive copies of financial records. NY G.O.L. 5-1509. The agent must submit copies of records to a monitor as well as to a co agent,court evaluator, Guardian, the representative of the principal’s estate and certain government agencies, such as investigative agencies and law enforcement officials. NY G.O.L. 5-1510. Perhaps if the monitor was completely separate from the principal, there could be more protection to the assets of the principal. But the costs of such record keeping and accounting may be considerable and the Power of Attorney was designed to replace the expensive process of Guardianship. So which is the better route?

THE SMGR OF THE POWER OF ATTORNEY

Under the new rules, and in response to the potential abuse inherent in the Power of Attorney, under the new rules, if the principal wishes to delegate to the agent the authority to make gifts, they must first initial this intent on the Power of Attorney form itself AND ALSO EXECUTE A SEPARATE STATUTORY MAJOR GIFTS RIDER (SMGR), which must be signed by the principal before a notary AND WITNESSED BY TWO WITNESSES, NEITHER OF WHOM IS A POSSIBLE RECIPIENT OF THE GIFTS. “Major gifts” are those in excess of $500/year and which do not continue the custom of the principal. NY G.O.L. 5-1514. Powers such as the authority to create, amend, revoke or terminate an intervivos trust, create joint accounts, modify “totten trust” beneficiaries and change beneficiaries on insurance or retirement accounts must now be included in the SMGR, as they are no longer encompassed within the powers accorded “insurance” or “retirement accounts”. See also NY G.O.L. 5-1501L. But does this truly prevent the abuse of a Power of Attorney?

THE THREE FORMS OF POWERS OF ATTORNEYS

There are three forms of Powers of Attorney, viz., "Nondurable," "Durable," and "Springing" Powers of Attorney. A "Nondurable" Power of Attorney takes effect immediately. It remains in effect until it's revoked by the principal, or until the principal becomes mentally incompetent or dies. It is often used for a specific transaction, like the closing on the sale of a residence, or the handling of the principal's financial affairs while the principal is traveling outside the country. A "Durable" Power of Attorney enables the agent to act for the principal even after the principal is not mentally competent or physically able to make decisions. The "Durable" Power of Attorney may be used immediately, and is effective until it is revoked by the principal, or until the principal's death. A "Springing" Power of Attorney becomes effective at a future time. That is, it "springs up" upon the happening of a specific event chosen by the principal, and spelled out in the Power of Attorney. Often that "springing" event is the illness or disability of the principal. It will frequently provide that the principal's physician will determine whether the principal is competent to handle his or her financial affairs. A "Springing" Power of Attorney remains in effect until the principal's death, or until revoked by a court. Now under the new law, there is a “springing event” to all Powers of Attorney as the date on which an agent's signature is acknowledged is the effective date of the Power of Attorney as to that agent; if two or more agents are designated to act together, the power of attorney takes effect when all the agents so designated have signed the power of attorney with their signatures acknowledged. NY G.O.L. § 5-1501B subd. 3 (a). Of course, if the Power of Attorney is a “Springing Power of Attorney (“to take effect upon the occurrence of a date or contingency”), the occurrence of the contingency is also required. NY G.O.L. § 5-1501B subd. 3 (b). Both "Durable" and "Springing" Powers of Attorney are frequently used to plan for a principal's future incapacity or disability and loss of competence resulting, for example, from Alzheimer's Disease or a catastrophic accident. And by appointing an agent under a "Durable" or "Springing" Power of Attorney, the principal is setting up a procedure for the management of his or her financial affairs in the event of incompetency or disability. Which is better for the principal?

IMPORTANT FOR ATTORNEYS

I am taking a break from our discussion of Power of Attorney to discuss an issue in which attorneys fell themselves powerless.I am a member of the Lawyers Assistance Program of the Nassau County Bar Association which provides confidential assistance to all attorneys, judges and law school students who are struggling with alcohol, drug and/or mental health problems or are affected by the problem of substance abuse, stress, or depression. Here is an article from the New York Law Journal which was forwarded to me by a fellow committee member entitled "Employment Woes Fuel Uptick in Lawyer Depression" by Vesselin Mitev which appeared on July 20, 2009:

The attorneys who attended a recent weekly support group in Manhattan were from different backgrounds and at varying stages of their careers, but one thing they all shared was a growing nervousness over the stagnant job market. Depression increasingly has been recognized as a major problem among attorneys, members of a high-stress occupation vulnerable to anxiety even in good times. And these are not good times. "There is anxiety and depression over being underemployed or unemployed, or marital difficulties if they lost their job and the question is, how do they handle the anxiety," said Eileen Travis, who heads the New York City Bar's Lawyer Assistance Program. More lawyers are calling the program and a greater number have been suffering from depression that stems, at least partly, from the decline in their personal and professional prospects brought on by the economic downturn. The organization this month started a support group, where for an hour each week for six weeks, lawyers can commiserate and share stories about their struggles. Thirty-one people signed up for the first session, led by Sylvan Schaffer, a licensed psychologist who also is an attorney. "I was getting quite a few calls from people that were depressed, burned out," Schaffer...said in an interview. Since many attorneys are "kind of embarrassed" about traditional psychotherapy, he said, the group meetings are an attempt to encourage frank discussion. "A lot of them say the same type of things -- people don't respond to resume solicitations, not even a call back," Schaffer said. "There's a sense of desperation." The support group has two main focuses, according to Schaffer: helping attorneys stay positive by sharing their stories and hearing encouragement from other members and coming up with creative job-hunting methods. One attorney, a corporate lawyer, was concerned that taking a job offer in litigation would derail his career. After discussion, the consensus was that in this job market, practicing in a different field is better than a blank spot on the resume, Schaffer said. "Attorneys really don't get sympathy. People assume that attorneys are rich and have jobs," Schaffer said, adding that he knows of lawyers who are reluctant to apply for unemployment benefits because of the "stigma that [doing] that really makes me unemployed." Other bar associations with lawyer assistance programs -- there are 17 run by county associations in New York as well as the New York State Bar Association for the rest of the state -- agree that attorneys confronting personal problems may be reluctant to seek help. "It takes a while for people to screw up the courage to call us," said John Crowe, the director of the Monroe County program. Patricia Spataro, who heads the state bar's lawyer assistance program, said that after a short spike of depression-related calls beginning in October 2008, the volume had dropped back to around six per month. "My theory is that the lawyers who have been profoundly impacted by the economy are struggling to right themselves and survive, and they are not paying too much attention to their increased stress level, depression, increased drinking," Spataro said in an e-mail interview. "Perhaps we might see these calls when the dust settles and the psychological effects are felt in full force." In addition to substance abuse, a lack of job prospects can trigger the onset of depression, which in extreme cases may even lead to suicide. The subject is familiar to Andrew Sparkler, an attorney whose close friend and Fordham University School of Law classmate, Dave Nee, took his own life in June 2005. "We were studying for the bar and Dave had had these long absences the previous semester, which in hindsight may or may not have been calls for help, and then he didn't show up for a day or two and at the time we didn't think it was a big deal. When we found out it was really just mind blowing, a uniquely terrible experience," Sparkler, a Manhattan lawyer with the American Society of Composers, Authors, and Publishers, said in an interview. Nee's death at 29 prompted Sparkler and some mutual law school friends to start The Dave Nee Foundation, a nonprofit organization that aims to support efforts at curbing suicide among adolescents and young adults. According to Sparkler, law students and lawyers, who tend to be competitive and unaccustomed to seeking assistance, often ably mask symptoms of depression. "If someone is the stereotypical lawyer, they are motivated and intelligent and proud and these are traits that ... don't always allow a person to acknowledge that they need help," he said. The current economic environment applies even more pressure to law students looking to get jobs, Sparkler said, especially given the method of grading most prevalent in law school today. "The exams determine [class] standing -- there is a forced curve and the pressure to get a job in this environment is ratcheted up even more," he said. This fall, board members of the foundation, including Sparkler, will meet with Fordham Law students in small groups to discuss ways to deal with stress, anxiety and uncertainty, all factors that could lead to depression. The project, called "Uncommon Counsel," will also distribute brochures with statistics and treatment information to faculty and students as well as update the school's Web site with similar details. The goal is to make students "realize that the law school has the resources available and just to take care of your friends and know where you can get anonymous counseling," said Sparkler. "You don't have to feel like you are the only person going through this in law school." William M. Treanor, the dean of Fordham Law, said that depression is a "very important issue" that often gets swept to the side. "It's a real concern and a problem in the legal profession," he said. "Studies indicate that it is common among law students and common among lawyers. Given that, it's important to try and figure out ways to combat it and to let people know if they are suffering, they are not alone." Getting the message out about depression is one of the main goals of Daniel Lukasik...who has suffered from depression since turning 40 seven years ago. Lukasik runs a Web site about lawyer depression, www.lawyerswithdepression.com, and is working on a documentary on lawyers and depression that he hopes to distribute to the 15 law schools in the state. The film, funded by state and Erie County bar association money, will feature Lukasik and other lawyers talking about their experiences with depression. "I don't want people to go through what I went through," Lukasik, who will speak to Syracuse University College of Law students at a seminar this fall about depression, said. "When I speak to these young people and say, 'This could be one of your brethren,' I [hope] it carries a lot of weight." Lukasik pointed out that traits generally associated with susceptibility to depression -- neurotic and individualistic tendencies -- are typically considered positive attributes in the legal field. "Being pessimistic is generally rewarded in the law," he said. But if that pessimism carries over to a lawyer's personal life, he said, it may become a catalyst to depression, when coupled with other stress-inducing events, like financial problems. "Financial stressors are triggers, so with the insecurity of not having a job...these [become] very loaded issues," he said.

The Nassau County Bar Association Lawyers Assistance Program operates a 24-hour confidential hotline: 1 888 - 408-6222.

POWER OF ATTORNEY AND GUARDIANSHIP

Under the new Power of Attorney Law, not only must the agent account to the principal, but, as set forth in NY G.O.L. 5-1501A, if a guardian is later appointed, the agent shall account to the guardian rather than to the principal. This I find interesting because most attorneys will recommend making a Power of Attorney in order to make guardianship proceedings unnecessary arguing that a Power of Attorney is much less expensive and much less stressful than the court-appointed guardian process. Article 81 of New York’s Mental Hygiene Law authorizes a court to appoint a guardian to manage the personal and/or financial affairs of a person who cannot manage for himself or herself because of incapacity and not all Article 81 guardians in New York have the same powers. Guardianship orders are specifically tailored so that the powers that are granted to the guardian are those that are specifically necessary to meet the needs of the person who is incapacitated. For example, a person may not be able to pay their bills or manage their money, but may have the ability to make healthcare decisions. In such a case, a court might appoint a guardian with powers that are limited to financial management. So this raises a question: what is best for the principal? To execute a broad Power of Attorney while they have the capacity or have a guardian appointed when necessary?

THE POWER OF A POWER OF ATTORNEY

One of the principal provisions of the new law regarding Powers of Attorney is that it is durable, i.e., not affected by the subsequent incapacity of the principal unless the document so states. NY G.O.L. 5-1501A. What I have seen many times is a Power of Attorney executed while the principal is incapacitated. For example, I was presented with a situation where a client discovered that a wealthy relative, who had previously made the client a primary beneficiary of the wealthy relative's estate, had executed a Power of Attorney to other relatives who were not named in the will. The wealthy relative was suffering from dementia and was attended to on a 24 hour basis. Of course, the other relatives who were not named in the will and who now had a Power of Attorney changed the will, established trusts for their benefits, etc. Another situation I was faced with was a client, who was living with a significant other who had a terminal disease, discovered that the significant other was basically no longer competent and wanted to get a Power of Attorney from the significant other to settle affairs. These situations illustrate a very important ethical question regarding the Power of Attorney - who does the attorney represent? The principal or the agent? And if the attorney, as I believe, should and must be the attorney for the principal and not the agent, should the attorney meet the proposed agent prior to the execution of the document and explain to him/her the obligations of a fiduciary under the new law, or is separate counsel needed? Remember: the Power of Attorney is a powerful too.

ANOTHER EXAMPLE OF ABUSE OF POWER OF ATTORNEY

In Estate of Frances E. Francis, File No. 4332003, (Surr. Ct. West. Co. March 5, 2008), a 98 year old woman executed a Power of Attorney prepared by her tenant, a nonattorney,in which he appointed himself as the agent. and included enhanced powers in the document, such as the ability to make gifts to the attorney in fact and to add any names, including his family members, to her accounts. The document specifically dispensed with any requirement that he account during Ms. Francis’s lifetime or after her death for his acts as such agent, and removed any liability for his acts as agent during Mrs. Francis’s lifetime or after her death. The agent claimed that he had obtained the form on the internet and had read a book which helped him add the powers that he included. The day after the Power of Attorney was executed, the agent removed an old power of attorney from banks, added himself and his mother to Ms. Francis’s accounts and a few months later executed a lifetime tenancy agreement in which he and his mother were granted lifetime tenancy, joint with right of survivorship, in Ms. Francis’s home, while she retained the right to reside in the home and pay the bills. The agreement allowed the agent and his mother to remain even if they did not pay rent. When Ms. Francis died at age 100, her nephew, the sole distributee, brought an action in Surrogate’s Court for an accounting and to set aside the transfers of assets. The nephew also attached a copy of a 1987 Will that had named him as the sole heir. The agent objected to discovery proceedings and claimed that the statute of limitations had passed for his actions. He also claimed that the Power of Attorney exonerated him from any acts as well as the need to account. The court held that the statute of limitations was 6 years, sounding in breach of fiduciary duty, and that the breach of duty started when he refused to file an accounting of his proceedings as attorney in fact. The court further held that any provisions which exonerate an agent under a Power of Attorney from any and all actions run afoul of public policy and of the requirements of GOL 51503. The court granted a summary judgment to the nephew and set aside all transfers and the tenancy agreement. The court also held that a Power of Attorney cannot eliminate the agent’s obligation to account, as that is fundamental to the fiduciary relationship. The decision found that no actions of the agent could be deemed to be in the best interests of Ms. Francis, and hence the actions were void against public policy.

EXAMPLES OF ABUSE OF POWER OF ATTORNEY

The potential for fraud exists in every power of attorney arrangement, through self dealing, embezzlement, and unlawful gifting. In some situations, a power of attorney holder will significantly deplete an estate, leaving the heirs of the principal with little or no inheritance. Other ways in which a power of attorney can be abused include changing beneficiary designations on life insurance or annuities, and opening bank accounts with joint title or pay on death provisions in favor of the agent. The potential for power of attorney disputes is large and can lead to lawsuits. In many situations, the power of attorney abuse is part of a broader pattern of elder abuse. If the principal has passed away by the time the power of attorney abuse has been discovered, the principal's estate or the intended beneficiaries of the property may, in New York, be able to sue the agent for breach of fiduciary duty. For example in Matter of Ferrara, 3 NY3d 244 (2006), the Court of Appeals determined that additional powers added to a statutory form, in particular the power to make gifts to an agent, must be exercised in the best interest of the principal. In Ferrara, an attorney who represented the agent, not the principal, prepared a Power of Attorney for the agent’s uncle without having met the uncle. The authority to make unlimited gifts to the nephew agent was included as an additional power to the statutory powers. The document was executed before an attorney/notary who had not previously met the uncle and who testified that she had acted only as a notary and had not explained the provisions of the Power of Attorney to him. The nephew then made gifts of approximately $800,000 to himself, in conflict with his uncle’s previous Will. When the charities named in the original Will sued to recover funds from the nephew, the lower courts upheld the gifts, as there was no evidence that the uncle had not properly executed the Power of Attorney. The Court of Appeals, however, reversed, stating that all powers must be exercised in the best interest of the principal, and that there was no possible benefit to the principal from the nephew’s actions.

MORE ON POWERS OF ATTORNEYS

Before we discuss the new Power of Attorney rules which begin on September 1 of this year, let us discuss the general rules of what a Power of Attorney is. A Power of Attorney is an agreement between two parties: a principal and an attorney in fact. The attorney in fact need not be an attorney at law (a lawyer). A Power of Attorney gives the attorney in fact rights to act in the principal's place. They are, in effect, fiduciaries of their principals. Powers of Attorney may be general, limited, or special. They are usually written documents, and New York imposes special requirements on their form or substance. General Powers of Attorney allow agents to take any legal action their principals may take. For example, the agent could open or close bank accounts in the principal's name, invoke or waive the principal's contractual rights, or buy or sell stocks for the principal. In New York, even a general Power of Attorney is not unlimited due to statute or court precedent. A principal may grant a limited Power of Attorney by placing restrictions in the Power of Attorney. New York also allows special Powers of Attorney for certain situations. Most often, special Powers of Attorney are used to appoint people to make medical decisions on the principal's behalf when the principal is incapacitated - a health care proxy. New York also has the Standby Guardian Designation, discussed in an earlier blog. Normally, a Power of Attorney only remains effective as long as the principal is alive and competent to make decisions. Principals may, however, grant durable Powers of Attorney that persist after they are no longer able to make their own decisions.

CRIMINAL RIGHTS - IMPORTANT NOTICE - NASSAU COUNTY

A notice appeared yesterday to all persons arrested for misdemeanor and non-criminal offenses in Nassau County who thereafter were strip searched upon entry to Nassau County Correctional Center, from May 20, 1996 to June 1, 1999. There is a class action in the United States District Court, Eastern District of New York entitled In Re Nassau County Strip Search Cases, Civ 99-3126, 2844, 4238 (DRH). In a nutshell, in 1999, the District Court for the Eastern District of New York held that Nassau County's blanket policy of strip searching newly admitted, misdemeanor detainees violated clearly established Fourth Amendment law. See Shain v. Ellison, 53 F.Supp.2d 564 (E.D.N.Y.1999), aff'd, 273 F.3d 56 (2d Cir.2001). Although the policy has never been formally enjoined, Shain v. Ellison, 356 F.3d 211 (2d Cir.2004) (vacating injunction for lack of standing), Nassau County officials assert that following the District Court's 1999 decision, they ceased implementing it. Shortly after the District Court's 1999 decision, plaintiffs brought three separate actions in the Eastern District of New York. Together, plaintiffs named as defendants Nassau County, Sheriff Joseph P. Jablonsky, the Sheriff's Department, County Executive Thomas S. Gulotta, the Division of Corrections, the Port Washington Police District and its chief of police, William Kilfoil, and up to 200 subordinate John and Jane Doe corrections officers. The case is now certified as a class action and defendants have conceded liability to the class members. If you are a member of the class, you have until August 15 to be excluded and if you have any questions, contact the class administrator at 1 877 933-1295

THE NEW POWER OF ATTORNEY RULES

On September 1, 2009, a new statutory Power of Attorney will be in effect. NY G.O.L. 51501, Chap. 644 of Laws of 2008. This new statutory form changes the manner of execution and the content of the previous statutory form. It continues the dual use of a Power of Attorney: financial access to a principal’s accounts while he or she has capacity as well as an effective tool for future planning if the principal becomes incapacitated. By setting forth the fiduciary duty of the agent to the principal, the new statutory form is intended to eliminate abuses committed by agents under the previous statutory Powers of Attorney and includes provisions intended to safeguard individuals from those who overreach via Power of Attorney. Even if the extensive provisions in the form do not stop the unauthorized use of funds, the statute is clear that agents must keep records and document their transactions. This requirement may prove a deterrent to those who wish to serve only for their own self interest. I just attended a seminar on this and will discuss more - and realize that Power of Attorneys executed prior to September 1 will still be effective but the fiduciary duties will now apply to them as well as the special proceeding that may be initiated to clarify the validity of the document executed prior to September 1, 2009

THE DOMESTIC ASSET PROTECTION TRUST

The Domestic Asset Protection Trust (DAPT) is variously known as an Alaska Trust, Delaware Trust, or Nevada Trust, since those states have been in the lead in authoring rather blatantly anti-creditor legislation that allows self-settled spendthrift trusts. I recently read an article (date unknown) about how it is an effective tool to protect your assets from creditors. Bottom line: it isn't. The 2005 changes to the Bankruptcy Code have created a new 10-year limitations period for transfers to self-settled trusts which are meant to hinder, delay or defraud creditors. This effectively means that all transfers to domestic asset protection trusts will be suspect for the 10 years prior to the date that a bankruptcy petition is filed. Because of this, domestic asset protection trusts should not be considered for asset protection planning and, indeed, in most circumstances it might be malpractice per se for an advisor to form a DAPT for his client if asset protection is a concern.This 10-year clawback by itself should be enough to keep people for using DAPTs for asset protection. Of course, this isn't going to stop the trust companies from marketing them. Moreover, if you are a New York resident, and but is not in bankruptcy and you are still considering using one of these out of state trusts, read my July 10 blog.

RENTING OUT APARTMENTS IN NASSAU COUNTY

As we now know all too well, many Americans are struggling to make their mortgage payments, while others are in desperate need of affordable housing. Enter the so-called mother-in-law apartment, which can fix both issues: Homeowners can fetch extra cash and in the process provide decent, below-market rentals. But can you convert your basement to an apartment? Each town has it's own code but many are similar to the Town of Hempstead's which only permit a single family home to be converted to a two family home under the following conditions: a) a permit is issued and plans approved and b) the second unit is used by a parent, child or sibling of the homeowner or the owner of the house is a senior citizen and obtains a special two-family senior citizen residence permit. If you don't follow the rules of your town, etc., it is an illegal apartment. Besides the danger of being fined by your local building department and the inability to collect rent in a non-payment proceeding (you cannot sue in court for rent of an illegal apartment), your insurance policy may be in danger (certainly an issue when people are injured on your property, there is a fire, etc.) as the insurer may disclaim coverage and your mortgage company may claim a default. In a recent landlord and tenant case, I spoke to the Town of Hempstead Building Department and they stated that under no circumstances, will they grant a permit for a basement apartment. You should note that the rules appear to permit the letting by a family of one (1) or more rooms to not more than two (2) boarders, roomers or lodgers, provided, however, that every room in such apartment shall have free and unobstructed access to each required exit. The applicable statute in the Town of Hempstead is Chapter 88: HOUSING AND REHABILITATION CODE.

MORE ON UMEPLOYMENT INSURANCE BENEFITS

He is a common issue I am getting from clients who are fighting to obtain unemployment benefits: were they fired or did they leave voluntarily? This can be a murky issue especially when an employee and the employer have a meeting where they both agree, for whatever reason, that it would be best if employment was terminated. According to the NYS Department of Labor: "You must meet the conditions set by law to receive unemployment insurance...You will be disqualified from receiving unemployment insurance if: You quit a job without good cause; or You quit a job due to marriage;...and You have not subsequently worked and earned five times your benefit rate. A disqualification for the above reasons lasts until you work and earn at least five times your benefit rate. You must be out of work again through no fault of your own."