Thursday, September 17, 2009
Catherine Wilson, Bureau Chief
Protecting Your Assets From
Your Own Family
In August, 2007, the Guardian reported on the prevalence of identity the in our society. At that time we revealed that the biggest threat to an individual’s identity and assets is their own family. Who else knows your date of birth, your mother’s maiden name, the first school you attended,
your last address, and even the name of your pets? When a family member uses your information to obtain a loan for themselves, it constitutes identity the and they can be criminally prosecuted.
But there is a growing area of the that is posing an even greater cause for concern for our local residents, particularly the elderly and the disabled – the the of assets covered under a power-of-attorney.
In recent months the Guardian has learned of numerous cases in Westchester communities where a family discovered, upon the demise of a loved one, that their loved one’s estate was depleted using a pre-existing power-of-attorney (POA). Until this month, depleting the entire life savings
of a family member with a power-of-attorney was relatively easy to do in New York State. All the unethical family member needed to do was coerce their loved one in granting them full powers over their assets by signing a POA form in the presence of a notary.
Prior state laws incorrectly surmised that a notary would assure that the POA was being signed by the individual of their own free will. Notaries
Public regularly witness the signing of a variety of legal documents and are supposed to be independent of the parties involved. However, there is no audit mechanism in place in New York State to verify that the notary witnessing the signature was indeed independent and verified the capability of the signer and their willingness to conduct the transaction.
In one case that the Guardian has observed, the notaries involved did not conduct any due diligence whatsoever, thereby allowing the fraud to
Virtually anyone over the age of 18 can become a Notary Public in New York State – all it takes is a $15 fee and a passing grade on a relatively
simple test, the answers to which are supplied online by local County Clerks’ offices. It is all too easy under current New York State Notary Public laws for a family member to become a notary and “witness” the coerced form signed by the elderly victim.
Dementia victims, individuals suffering from mental and cognitive problems, poorly educated individuals, and even individuals who are incredibly trusting, are particularly vulnerable to this type of the . An elderly individual who is no longer able to take care of their finances and affairs often turns to a family-member for assistance. That family member, once aware of the amount of assets in the elderly person’s accounts, may see an opportunity to obtain those assets all for themselves, rather than waiting to receive their portion, if any, in accordance with the elderly relative’s will.
Once the unscrupulous individual has a power-of-attorney in their hands, they can now make all banking, investment, and real estate transactions for their victim. In each and every case the Guardian uncovered, by the time other family members realized what had happened, the money and even the houses were long gone. The Guardian uncovered cases where local thieves bought automobiles and homes claiming they were for the use of the victim, even moving the victim into the houses for a period of time to “justify” the purchases, and then transferring the deeds to themselves, circumventing any wishes the elderly person expressly noted in their Last Will and Testament for the distribution of their funds and assets.
Both our Federal and State governments inadvertently encourage the elderly and disabled to shift their money out of their own control thanks to Medicaid and disability laws. Individuals who need nursing home care or extensive medical assistance, such as the mentally ill and disabled, cannot
usually afford the high cost of such extended intensive care and must apply to the government for assistance.
However, in order to be able to qualify for government aid, the individual must first “spend down” their assets – they will only qualify for help once they can prove that they have almost nothing left in their own name with which to pay for their care. Once an elderly individual realizes that they are in the early stages of dementia, they will often be concurrently advised by their attorneys and financial planners to immediately start transferring their assets out of their own name to “protect them from Medicare”.
One of the first steps an elder care attorney will take with a new client is to draft a power-of-attorney form for them, entrusting the power over their assets to a family member or close friend. These powers can be drafted on behalf of the dementia victim to be used only once the individual no longer has any ability to act in their own behalf. However, banks and investment firms rarely ask for confirmation that an individual is incapacitated when accepting a power-of-attorney (POA) for a transaction.
The role of the elder care attorney is to assure that the individual is not being coerced in such situations; an attorney will interview the client
separate from the family members to assure that they are acting of their own free will. However, current state laws do not mandate that the power-of-attorney forms be drafted in the presence of an attorney. Anyone with access to the internet can download a free form and coerce the victim into signing it in front of a notary. As the Guardian uncovered, the notaries do not always assure that the individual signing the form is not being coerced. Nor are notaries required to take any training which would help them to identify the signs of coercion.
To deter some of these acts of fraud, New York State recently enacted new laws to expand the protection for individuals drafting a power-of-
attorney. As of September 1, 2009, the new power-of-attorney forms have several new clauses to protect the individual issuing the powers.
The new form’s name alone indicates the changes, the title was changed from “Statutory Short Form Power of Attorney” to “Statutory Short Form and Other Powers of Attorney For Financial Estate Planning”, recognizing the fact that most individuals drafting this form are doing so as part of an estate plan and that the POA should work in tandem with the wishes and directives outlined in the individual’s “Last Will and Testament”.
The new laws do not affect most POA’s already in effect prior to September 1, 2009. However, the law specifically requires new
POA’s for the following types of powers:
§5-1502J for “Construction” authority - for authority over benefits from governmental programs or civil and military service
§5-1502K for “Construction” authority - for authority on health care billing and payment matters; records reports and statements
§5-1504 for “Acceptance of statutory short form power of attorney”;
§5-1510 for “Special Proceedings”
The new state laws expand the definitions used in a POA including “Capacity”. Capacity is now defined by the State to mean “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”.
In short, the definition as expanded raises questions as to the capacity of a cognitively-impaired, mentally disabled, or victim of dementia, even a mild version, to authorize a POA on their behalf.
Such restrictions may now require legal guardians to be appointed to review a POA for these individuals. While this may appear to be added
protection, the Guardian has revealed in recent months the kickback nature of the guardianship process in our courts, where such appointments routinely are given to attorneys whose only qualification is the amount of their campaign contributions to the judge appointing them. In one local instance, the court appointed a convicted felon to handle the affairs of a disabled young woman who was the victim of Aspersers’. The Surrogate’s Court has never required that this felon account for the $2 million in his care, in defiance with New York State laws. This sad case was reported by the Guardian in February and March of this year. To date, the court has done nothing to rectify this situation.
To circumvent individuals who possess POA’s from “gifting” any funds in their victim’s bank accounts to themselves, the new state law has
expanded its definition of a “Statutory major gifts rider”. According to the law, this rider allows the individual to define who and what they
intend to gift, if anything. The new law mandates that the “statutory major gifts rider and the statutory short form power of attorney it supplements must be read together as a single instrument”. Anyone acting on a POA, and attempting to make a gift to themselves from a bank account or other asset, will now have to produce the gifts rider as evidence along with the POA.
The individual who holds the authorities granted in a POA is referred to as an “agent” since they are acting on behalf of the person who signed
the POA (referred to as the “principal”). The new law has expanded the definition of agent to now include an individual who has a “fiduciary relationship with the principal”. The purpose of this new clause in the law is to avoid circumstances such as the recent organ-selling cases from disabled and poor victims. In this 10-year investigation uncovered by the Federal Bureau of Investigation, nursing home and health care employees were providing names of individuals who had no family members to the organ-selling ring who then obtained POA’s and other legal rights from their victims, enabling the crime. The new state law attempts to avoid “third-party” POA’s where the individual appointed as agent has no reason to be acting “in the best interests” of the principal.
A person who has a “fiduciary relationship” with another is someone who is legally expected to be acting “in the best interests” of the
other. While this new law has yet to be tested and applied in the courts, it does appear that the intent of the New York State lawmakers is to have agents prove that the purchases and expenditures they were making on behalf of the principal were indeed “in their best interests”. If not, this law could conceivably allow the other family members to legally challenge those purchases and any depletion of assets and funds.
Note – due to the stranglehold that the New York State Bar Association has over the New York State legislature by virtue of their lobbying
efforts and campaign contributions, only an attorney may offer legal advice in the State of New York. Therefore, this reporter cannot state the obvious here without running afoul of local lawyers, so any inferences we make about this new law have to be couched in terms such as “conceivably” and “perhaps” - not our usual direct style of reporting. But the trusts our readers’ ability to decipher this of the new law for themselves!
The new law specifically addresses what happens to a POA when the individual authorizing it becomes incapacitated – the new forms have
a clause that states “this POWER OF ATTORNEY shall not be affected by my subsequent incapacity unless I have stated otherwise below, under
“Modification”. The principal can elect to revoke the POA completely once they become incapacitated. The law also covers the size of the print that must be used on the POA form and specific cautions to be noted to protect the principal signing this form.
A new “Caution” clause has been added to the POA form: “CAUTION TO THE PRINCIPAL: Your power of Attorney is an important document. As the “principal”, you give the person whom you choose (your “agent”) authority to spend your money and sell or dispose of your property
during your lifetime without telling you. You do not lose your authority to act even though you have given your agent similar authority.
When your agent exercises this authority, he or she must act according to any instructions you have provided or, where there are no specific instructions, in your best interests. “Important Information for the Agent” at the end of this document describes your agent’s responsibilities.
Your agent can act on your behalf only after signing the Power of Attorney before a notary public. You can request information from your agent at any time. If you are revoking a prior Power of Attorney by executing this Power of Attorney, you should provide written notice of the revocation to your prior agent(s) and to the financial institutions where your accounts are located.
You can revoke or terminate your Power of Attorney at any time for any reason as long as you are of sound mind. If you are no longer of sound
mind, a court can remove an agent for acting improperly.
Your agent cannot make health care decisions for you. You may execute a ‘Health Care Proxy’ to do this. The law governing Powers of Attorney
is contained in the New York General Obligations Law, Article 5, Title 15. This law is available at a law library, or online through the New York
State Senate or Assembly websites, www.senate.state.ny.us or www.assembly.state.ny.us.
If there is anything about this document that you do not understand, you should ask a lawyer of your own choosing to explain it to you.” In addition, the new law imposes the following obligations upon the agent named in the POA: “When you accept the authority granted under this Power of Attorney, a special legal relationship is created between you and the principal. This relationship imposes on you legal responsibilities
that continue until you resign or the Power of Attorney is terminated or revoked. You must:
• Act according to any instructions from the principal, or, where there are no instructions, in the principal’s best interest;
• Avoid conflicts that would impair your ability to act in the principal’s best interest;
• Keep the principal’s property separate and distinct from any assets you own or control, unless otherwise permitted by law;
• Keep a record of all receipts, payments, and transactions conducted for the principal; and
• Disclose your identity as an agent whenever you act for the principal by writing or printing the principal’s name and signing your own name as “agent” in either of the following manner: (Principal’s Name) by (Your Signature) as Agent, or (your signature) as Agent for (Principal’s Name).”
While this new law instructs to act in the best interest of the principal and in accordance with any written instructions by the principal, it does not address whether those written instructions will hold up in court.
Many local elderly residents have already shifted the control of their assets to other family members to “protect them from Medicare”, under the
advice of their attorneys. Ethical family members understand that those funds are not their own money and hold them aside to be used for their
loved one’s needs.
Since these funds and assets were transferred to other family members before their death, and are then part of that family member’s portfolio,
these funds and assets are not considered to be part of the estate when the elderly individual dies. To assure that the family member holding the transferred assets does not keep them all to themselves, the elderly family member usually leaves written instructions as to how those funds and assets should be distributed upon their demise.
Unfortunately, those written instructions do not hold up in court. The Guardian has evidence of how one local attorney, a Law Secretary with the White Plains Supreme Court, advised his elderly mother to shift $150,000 of her funds to him to “protect them from Medicare”. When she died eight years later, those funds now legally belonged to her son. The attorney’s mother had left written instructions to address the distribution of these funds including allocating a small portion of them to each of her grand-children. But the attorney chose to ignore his dying mother’s
wishes and kept the funds for himself instead. When the children’s mother took this attorney to court to protest him not acting in his mother’s best interests by defying her written instructions, the mother was sanctioned and fined by the judge for daring to pursue this for her children.
So, while the new POA law may allow for written instructions to be followed, court orders in similar instances show that judges ignore these laws. As the Guardian has noted in previous reports on these issues, the courts offer little support to victims of fraud since so many fraud cases are perpetrated by attorneys and officers of the court to begin with. The best defense therefore that an elderly resident has is to find the most trustworthy member of their family, or circle of friends, to entrust the handling of their affairs to.
The new law is explained in detail by the New York State Bar Association in their online publication at www.nysba.org. The NYSBA has provided
a sixty-nine page analysis covering all of the areas of this new law. Since the changes are extensive and cover sensitive areas such as access to medical billing and government records and, since this article cannot be construed by the reader as legal advice, any local resident concerned about their existing power-of-attorneys, or their need for a POA, should consult with a trusted attorney who is experienced in the drafting, and pitfalls, of POA’s.