Beware or Be Blindsided: Avoiding Estate Planning Pitfalls

I. INTRODUCTION Together, a power of attorney (1) and a health care proxy (2) are two of most basic and essential estate planning documents for people of any age. (3) Unlike other planning documents, power of attorney and health care proxy are utilized while client is still alive. (4) Therefore, ensuring these documents provide properly for client's wishes is one of most important functions of (5) Through execution of these two documents, clients provide agent with crucial powers needed to make most personal healthcare and property decisions for a client, (6) seeking to guard against uncertainties of life. (7) But, do these documents really protect against such uncertainties? At first blush, it would seem so since that is documents' very purpose. However, recent case law has demonstrated that 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 plan can also be thwarted by a family member's dissatisfaction. To address these situations, lawyer may now need to anticipate unexpected to protect client's estate plan from unfavorable interpretations and family challenges. Parts II and III of this note focus on power of attorney and health care proxy and uses case illustrations to highlight how operation of these documents has become uncertain. Further, Part IV explores inherent uncertainty created by third party dissatisfaction and how it can thwart goals of estate plan. Part V then discusses implications of these uncertainties and how they can damage client and attorney. Finally, Part VI closes with some recommendations on how estate planning practitioner can predict these potential pitfalls, and eliminate or at least minimize associated effects. II. POWERS OF ATTORNEY A. Background Beginning as a common law principle of agency, power of attorney was first codified in New York in 1948 with advent of statutory short form power of attorney. (12) By 1975, statutory instrument was amended in General Obligations Law to provide for its durability, allowing instrument to remain in effect despite principal's incapacity. (13) In 1996, General Obligations Law was further amended to allow principal to bestow gifting powers upon his attorney-in-fact. (14) The evolution from a common law principle to a statutorily defined instrument reveals changing role and importance of document in modern society. It is precisely this growing importance that led to 2009 revisions of power of attorney law. In 2000, New York State Law Revision Commission (15) conducted extensive study to explore weaknesses in existing law. (16) Recognizing enhanced powers 1996 amendments bestowed on attorneys-in-fact, Commission noted, the breadth of authority granted under a power of attorney has evolved over 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, amendments permitted agent to gift 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. …