Durable Power of Attorney and How it Works

A durable power of attorney is a legal document that authorizes your agent to do or perform certain acts on your behalf. It is “durable” because it is still effective even if you, the principal, lose mental capacity. A durable power of attorney is effective upon signing and acknowledgment before the notary and will be terminated once you revoke the power of attorney or, if not revoked, until your death. An agent in a durable power of attorney, however, cannot make health care decisions for you. You need to execute a health care proxy, if you’d like someone to make health care decisions on your behalf, in case of incapacity.

Durable power of attorney vs. regular power of attorney

In a durable power of attorney, the agent retains powers to act for you even if you become incapacitated, e.g., you get Alzheimer’s. A regular power of attorney, on the other hand, ceases to become effective when you lose capacity. For example, John executes a regular power of attorney, authorizing his wife, Jennifer, to enter into banking transactions on his behalf. This regular power of attorney was given to John’s bank for recording and reference. John subsequently got into a hit-and-run accident, which resulted in him being in a coma. While John was still unconscious and still in a coma, Jennifer went to John’s bank to withdraw money to pay for John’s hospital bills. Can Jennifer do this with a regular power of attorney? No, because a regular power of attorney ceases to become effective when the principal loses capacity. Since John is unconscious and in a coma, John has lost capacity. Thus, the regular power of attorney he executed in favor of Jennifer has become ineffective.

Supposing that John executed a durable power of attorney, can Jennifer withdraw from John’s bank to pay for John’s medical bills, even if John is still in a coma? Yes, because a durable power of attorney stays effective despite the principal’s incapacity. Even if John is in a coma and has lost capacity, Jennifer is still authorized to perform the acts and powers granted in the durable power of attorney.

Durable power of attorney vs. springing power of attorney

A durable power of attorney is different from a springing power of attorney, in the sense that, a springing power of attorney, though signed now, is only effective once you lose mental capacity and may be terminated once you gain capacity. Normally, a springing power of attorney requires a written certification from your physician that you have lost mental capacity. This gives your agent then the authority to act on your behalf.

For example, John executed a durable power of attorney, authorizing his wife, Jennifer, to enter into real estate transactions on his behalf. John has a house in Brooklyn deeded in his name only. John still has mental capacity and does not appear to be mentally incapacitated in any way. Jennifer, as John’s agent, sold the house to a third party. Is the sale valid? Generally, the sale is valid because Jennifer appears to have acted within her authority in selling the house. Jennifer has a durable power of attorney to enter into real estate transactions on John’s behalf, which authority is effective immediately upon signing even if John still has capacity.

Suppose, however, that John executed a springing power of attorney and not a durable power of attorney, is Jennifer’s act of selling John’s house to a third party valid, considering that John still has capacity? No, Jennifer’s act of selling John’s house to a third party is void. Because John only signed a springing power of attorney, Jennifer does not have the power to represent John in a real estate transaction until John’s physician issues a certification that John has lost mental capacity.

Statutory form for a durable power of attorney

Title 15 of Article 5 of New York’s General Obligations Law (GOL) provides the statutory short form for the durable power of attorney. Prior to the amendments in June 2021, the statutory form was strictly used. Any deviations rendered it invalid. Today, substantial compliance with the statutory language is allowed. Insignificant mistakes in spelling, punctuation, and formatting that deviate from the statutory form are allowed, for as long as the two warnings in NY GOL § 5-1513 regarding “Important Information for the Agent” and “Caution to the Principal” are not omitted. Just to be safe, however, in executing a durable power of attorney, it’s still better to use the standard form. There is a part on the form on modifications that allows you to limit and modify the agent’s powers granted in the standard form.

When do you need one

A durable power of attorney is a very powerful legal document. As can be seen from the examples above, it is effective immediately upon signing and acknowledgment before the notary and continues even if you are incapacitated. Your agent has the power to act on your behalf, but it doesn’t preclude you from acting as well. A good example of when a durable power of attorney is handy is when you are overseas.

For example, John is single, a member of the military service, and is stationed in Korea. He purchased a house in White Plains, New York, through a VA loan with $0 downpayment. During the pandemic, he was surprised to see that his house appreciated in value by 60%. Apparently, demand for housing in the suburbs increased, as many New York City residents left Manhattan. John is currently in Korea but executed a durable power of attorney, authorizing his mom, Martha, as his agent to enter into real estate transactions in his behalf. He told his mom to sell the White Plains house so he can make a profit. His mom sold the house to a third party. Is the sale valid? Yes, because the durable power of attorney is effectively immediately upon proper execution, and John gave his mother powers to enter into real estate transactions on his behalf in the said durable power of attorney.

The need for a lawyer

As you can see in the above examples, a durable power of attorney is a powerful legal document that authorizes your agent to enter into financial transactions on your behalf. If you read the statutory form, the powers granted are broad. However, these powers can still be limited through the modifications portion. For this reason, before signing any durable power of attorney, it’s important that you have it reviewed by a lawyer so your lawyer can insert some safeguard mechanisms and limitations in the modifications portion to ensure that your rights as a principal are protected.

In the example above where John authorized Jennifer to enter into banking transactions, he can limit banking transactions to a certain amount, for example, $1000. John can write that transactions above $1000 require his approval, or the approval of another person, in case he is incapacitated.

In the example where John authorized Jennifer as his agent to enter into real estate transactions, John can also limit and modify this power by allowing Jennifer to enter into real estate transactions, but require that all proceeds of the real estate transactions executed in his behalf be deposited to his bank account, and provide a particular bank account number.

In the statutory form, there is a portion that can be checked, allowing the agent to make gifts up to $5000 annually. This can still be modified in the modifications portion by disallowing the agent to make gifts to himself or to his family, or allowing the agent to make gifts for purposes only of Medicaid planning.

Given above, it is very important to only appoint an agent in a power of attorney that you completely and absolutely trust. Still, there are several ways to limit the grant of powers in a power of attorney that will provide safeguard mechanisms for you. For this reason, it is always important to consult with a lawyer before signing any power of attorney.

If you are planning your estate or considering the execution of a power of attorney, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].