Academic journal article Albany Law Review

Beware or Be Blindsided: Avoiding Estate Planning Pitfalls

Academic journal article Albany Law Review

Beware or Be Blindsided: Avoiding Estate Planning Pitfalls

Article excerpt

I. INTRODUCTION

Together, a power of attorney (1) and a health care proxy (2) are two of the most basic and essential estate planning documents for people of any age. (3) Unlike other planning documents, the power of attorney and health care proxy are "utilized while the client is still alive." (4) Therefore, ensuring these documents provide properly for the client's wishes is "one of the most important functions of an attorney." (5) Through the execution of these two documents, clients provide an agent with the crucial powers needed to make the most personal healthcare and property decisions for a client, (6) seeking to guard against the uncertainties of life. (7)

But, do these documents really protect against such uncertainties? At first blush, it would seem so since that is the documents' very purpose. However, recent case law has demonstrated that the operation of these estate planning documents may not be so certain. For example, even if your irrevocable trust prohibits amendments from being made, your attorney-in-fact may be able to make amendments to it. (8) If you are your mother's attorney-in-fact and health care agent, you still may not be able to decide in which nursing home she should live. (9) If your attorney-in-fact transfers your real property to himself (10) in accordance with your express wishes, this transfer may still be questioned. (11) In addition, despite a lawyer's best efforts to meet a client's estate planning goals by using these documents, case law shows that the plan can also be thwarted by a family member's dissatisfaction. To address these situations, the lawyer may now need to anticipate the unexpected to protect the client's estate plan from unfavorable interpretations and family challenges.

Parts II and III of this note focus on the power of attorney and health care proxy and uses case illustrations to highlight how the operation of these documents has become uncertain. Further, Part IV explores the inherent uncertainty created by third party dissatisfaction and how it can thwart the goals of an estate plan. Part V then discusses implications of these uncertainties and how they can damage the client and the attorney. Finally, Part VI closes with some recommendations on how the estate planning practitioner can predict these potential pitfalls, and eliminate or at least minimize the associated effects.

II. POWERS OF ATTORNEY

A. Background

Beginning as a common law principle of agency, the power of attorney was first codified in New York in 1948 with the advent of the statutory short form power of attorney. (12) By 1975, the statutory instrument was amended in the General Obligations Law to provide for its "durability," allowing the instrument to remain in effect despite the principal's incapacity. (13) In 1996, the General Obligations Law was further amended to allow the principal to bestow gifting powers upon his attorney-in-fact. (14) The evolution from a common law principle to a statutorily defined instrument reveals the changing role and importance of the document in modern society.

It is precisely this growing importance that led to the 2009 revisions of the power of attorney law. In 2000, the New York State Law Revision Commission (15) conducted an extensive study to explore the weaknesses in the existing law. (16) Recognizing the enhanced powers the 1996 amendments bestowed on attorneys-in-fact, the Commission noted, "the breadth of the authority granted under a power of attorney has evolved over the years far beyond those originally envisioned." (17) These amendments allowed "an agent to create trusts, change beneficiaries to a life insurance policy, and establish joint bank accounts and totten trusts." (18) In addition, the amendments permitted an agent to gift the principal's assets to another or to self-gift assets to himself, including assets such as securities, real property, bank accounts, and life insurance contracts. …

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