In modern law a Power of Attorney is a written statement of an agency relationship - a legal relationship in which one party (the "principal") appoints another (the "agent") to conduct business on the principal's behalf, usually under circumstances when the principal is not physically present. The law of agency is ancient, having its origins in distant commercial history when the means of transportation and communication were slow and uncertain. Being able to dispatch multiple agents to various parts of the world enabled wealthy merchants to expand their commercial horizons. The commercial origins of agency law continue to be felt in the modern law of agency.
New York has codified a large body of agency law in the General Obligations Law. The GOL Power of Attorney is relatively short, something
made possible because extensive powers and definitions are contained in the statute, which is incorporated by reference in the statutory form.
At common law, an agency relation terminated when the principal became incapacitated. The New York statutory form overcomes this drawback
by specifically providing that, if it so states, a statutory power of attorney shall survive the incapacity of the principal. It is this
power that makes the statutory power of attorney so useful to estate planners.
The statutory form creates two distinct sets of legal relationships. The first is between the principal and the agent and the second is between the agent and third parties. New York implies a duty on the part of the agent to act in the "best interest" of the principal and all acts of the agent will be scrutinized under that standard. On the other hand, third parties are able to rely upon the actions and statements of an agent and have no obligation whatsoever to judge whether the agent is, in fact, acting in the principal's best interest. There are few checks and balances inhibiting an unscrupulous agent from abusing the principal's trust and literally stealing the property of the principal. Nonetheless, a Power of Attorney with a trustworthy and trusted agent can be an important tool in an estate plan.
Although relatively broad in scope, the statutory form omits certain powers useful in modern society. Fortunately additional powers
not inconsistent with the statutory form may be inserted. An example of where the statutory form should be tweaked is in the area of
Moving assets from the medicaid applicant to the well or community spouse is an essential element in setting up a successful "spousal refusal" stragety in medicaid planning. The limited gifting power in the statutory form is not sufficient to take advantage of the medicaid exclusion of gifts "to or for the exclusive use of a spouse" from prohibited transfers during the "lookback" period. This lack can be remedied by the insertion of an unlimited gifting power between spouses.
When a person lacks the requisite legal capacity to sign a power of attorney or create a trust and is unable to manage his or her affairs, it may be necessary to consider Court appointment of a Guardianship pursuant to New York Mental Hygiene Law.