New York's New Power of Attorney Law

New York State's new form for a power of attorney which takes effect on September 1, 2009 marks a major change in the law. It may be found in Section 644 of New York's General Obligations Law. As I reported earlier, the effective date of the law was postponed from this past February to give the bar a chance to become familiar with the new form and its pitfalls. The changes are so complex that a second law to amend the first and to correct some of its inconsistencies and shortcomings was needed. Unfortunately, those unruly children who comprise the august body some folks call the New York State Senate were so busy this summer having what can only be seen as a legislative food fight that virtually no meaningful work was done for weeks and this most important piece of legislation has not yet been signed into law. This can only add to the possibility that the new law will become an attorney's relief act.

While any duly drawn and executed power in existence prior to the new law will remain in full force and effect, we will all have to get used to some sweeping changes . It is necessary to take particular notice of the new form which requires not only the signature of the giver of the power but also of the agent. Specific and extensive warnings to both the giver and the agent must be acknowledged and the major gifts portion of the document must be executed simultaneously with the basic power . The major gifts portion of the power requires two witnesses and must be executed in the same manner as a will. The clear intent of the law is that both the giver of the power and the agent are far more aware of the importance of the document . The exposure of the giver is clearly spelled out as are the responsibilities of the agent who may be entitled to compensation for his or her service.

All new powers of attorney are to be durable unless it is specifically noted in the instrument that they are not. The law mandates that banks accept the power and further provides that attorneys may certify that a photocopy of a duly executed power is a true copy of the original.Banks are required to accept these certified copies. This will help to eliminate the problems which arise when a bank insists that only its own power of attorney be used --- something that may be impossible where the depositor has become incompetent and can no longer issue a new power.

There is a wide range of open issues and questions that have arisen as a result of the new power of attorney. Litigation is a likelihood in order to have resolution of these items and the potential that some folks will suffer drastic unforeseen outcomes exists.

Loans by trust to insurance trust violated prohibition on retention of unproductive property

An income beneficiary objected to the trustees’ accounting which showed that the trust had made loans to a second trust to pay premiums on a life insurance policy on the income beneficiary. The court granted summary judgment for the income beneficiary. Because the loans had never produced income in the fifteen years they had been outstanding, they were unproductive property retention of which violated the trustees’ duty to the income beneficiary and the express language of the trust prohibiting the trustees from retaining unproductive property beyond a reasonable period of time.

In re Terranova, 873 N.Y.S.2d 651 (N.Y. App. Div. 2009).

NY: Widow Lacks Standing to Sue Husband's Lawyers Over Mishandled Will, Judge Finds

A widow who claims that the mishandling of her husband's will by his attorneys will cost her $9 million may not pursue a malpractice claim against them, a Manhattan judge has ruled.
Supreme Court Justice Marilyn Shafer ruled that there was neither privity nor even "near privity" between the widow, Jeanne Sorenson Leff, and the attorneys.

Shafer discounted Leff's argument that her occasional interactions with the attorneys, including their preparation of her own will, created an attorney-client relationship regarding her husband's estate planning. "[T]he mere fact that plaintiff might have had a 'subjective belief as to the existence of an attorney-client relationship' is not enough to create [one],"

The decision raises the question of who, if anyone, may sue in New York for malpractice when attorneys make mistakes in planning estates. "In New York, we're one of the few states left with the privity doctrine. When the decedent died, he was the only one who had privity and he was the only one who could sue." Not even the administrator or executor of a decedent's estate may stand in his stead for a malpractice action, according to Schlesinger, whose firm is not involved in the Leff case. Nationally, the law is evolving away from that position, he added, as states move to abandon the doctrine.

Shortly after Mr. Leff's death, his son, Adam, made a claim pursuant to Mr. Leff's 1974 separation agreement with his first wife, in which Mr. Leff agreed that "no less than one-half of his probate estate" would pass to their son, Adam. Mr. Leff's attorneys had not considered that agreement when drafting his estate plan -- they later testified that they only discovered the agreement in Cunningham's file cabinet when responding to Adam's claim, shortly after Mr. Leff's death. Adam and Mr. Leff's estate entered into a settlement agreement under which Adam received approximately $20 million.

Ms. Leff subsequently filed the present suit contending the lawyers committed malpractice by failing to inform Mr. Leff about the existence of the separation agreement, and thereby neglected to consider it when developing his estate plan. That failure, Ms. Leff argued, interfered with Mr. Leff's intent, as expressed in his will, to leave her one half of his estate. She claims the mistake cost her approximately $9 million.

In a decision handed down last week, Justice Shafer ruled that Ms. Leff does not have standing to pursue the claim. "This court finds that the evidence does not indicate that plaintiff was ever involved in a joint estate plan with her husband, or that a relationship approaching 'near privity' with defendants vis-a-vis Leff's estate plan existed such as might make defendants plaintiff's attorneys with regard to Leff's personal estate plan," Shafer concluded in granting the defendants' motion for summary judgment.

NY Probate - Interested Witness Without Knowing It

On April 27, 2009, a New York court held that a necessary witness to a will was an interested witness and was denied benefit under the will, even though his benefit under the will was unknown.

The respondent in the case, Henry Wu, was the beneficiary of two life insurance policies. Decedent's will provided that all taxes resulting from decedent's death, including those arising outside the will, were to be paid by the estate and were not to be apportioned among the beneficiaries. Wu argued that this provision freed him from responsibility for the taxes on the approximately $3.3 million he received from the life insurance policies. The court would have agreed had Wu not been a necessary witness to the will. New York law provides that a witness to a will cannot benefit from a disposition in the will. The court reasoned that the non-apportionment clause operated as a benefit in favor of Wu because he would be relieved from his portion of applicable taxes. Therefore, the court ordered Wu to pay his portion of the taxes on the life insurance proceeds.

The court recognized that the decision may seem harsh. While the interested-witness statute was designed to prevent a witness from using fraud or coercion to benefit under the will, Wu was not named in the will, and he claimed that he was unaware of his benefit at the time of witnessing. Nevertheless, the court deemed Wu an interested witness, even though it seems it was unlikely he used fraud or coercion to benefit under the will. The court concluded that "[i]t behooves any drafter using [a non-apportionment clause] to be fully informed of the testator's non-probate assets to avoid unintended consequences, some of which may have even greater potential for frustrating the testator's intent." In re Estate of Wu, 2009 NY Slip Op 29188 (Sur Ct, New York County 2009).

New York - New Power of Attorney Law Takes Effect on Sept. 1, 2009

NY: Sweeping changes in New York's law concerning powers of attorney will take effect on September 1, 2009. The legislature has revised Chapter 644 of the laws of 2008 to amend the state's General Obligations law. The changes are complex and affect, among other things, not only the instrument's form but also the level of fiduciary responsibility imposed, the need for the agent to keep detailed records and to make them available and provisions for using the power to make major gifts.