A power of attorney is a legal instrument which provides the legal authorization for a person you trust to act on your behalf if you become incapacitated.
This trusted person, known as your agent or your attorney-in-fact, handles your financial affairs. They pay your bills, manage your investments, and interact with insurance companies for you.
While it is possible for you to name multiple people as your agents, you must give great care to how these people are going to work together. For example, if you name multiple people, are they allowed to act independently or must they agree (and if so, must it be unanimous) on all decisions being made?
Power of Attorney Defined
Most jurisdictions provide a statutory framework for powers of attorney.
In New Jersey, this statutory framework is found at N.J.S. 46:2B-1 et seq.
For instance, under New Jersey law, “a power of attorney is a written instrument by which an individual known as the principal authorizes another individual or individuals or a qualified bank within the meaning of P.L. 1948, c. 67, § 28 (C. 17:9A-28) known as the attorney-in-fact to perform specified acts on behalf of the principal as the principal’s agent.”N.J.S. 46:2B-8.2(a)
Moreover, an attorney-in-fact has a fiduciary duty to the principal to act within the powers delegated by the power of attorney and solely for the benefit of the principal.
The attorney-in-fact must maintain accurate books and records of all financial transactions. Upon request by the principal or any heir, the attorney-in-fact must be prepared to render a full and complete accounting.
Difference between a Durable Power of Attorney and a Springing Power of Attorney
A durable power of attorney (DPOA) becomes effective as soon as you sign it. This means your appointed agent can start managing your affairs immediately, even while you’re still capable of making your own decisions. Importantly, a DPOA continues to be effective if you become incapacitated.
On the other hand, a springing power of attorney (SPOA) only ‘springs’ into action upon the occurrence of a specific event, typically your incapacity. The SPOA requires proof of your incapacity before your agent can act. This usually involves obtaining a physician’s confirmation, which might delay critical decisions.
Essentially, the DPOA offers immediate and ongoing authority, while the SPOA requires a triggering event and proof of that event to activate.
Also, by establishing a DPOA, you avoid a potential court-appointed guardianship or conservatorship. This process can be expensive, time-consuming, and may not reflect your preferences.
You should tailor your Power of Attorney to your specific needs, but common powers that should be considered include:
- Financial Management: The ability to access bank accounts, pay bills, manage investments, file taxes, and handle other financial matters.
- Real Estate Transactions: The power to buy, sell, manage, or lease real property on behalf of the principal.
- Personal Property Transactions: The power to buy, sell, or manage personal property, such as cars, jewelry, or other personal belongings.
- Legal Matters: The power to hire attorneys, initiate or defend lawsuits, and make other legal decisions.
- Gift-Making Powers: The power to make gifts or transfers of the principal’s assets, often used in estate planning.
- Business Operations: If the principal owns a business, the power to manage and make decisions related to the business can be important.
- Insurance Transactions: The power to buy, sell, or manage insurance policies, and to file and manage insurance claims.
- Tax Powers: The power to file tax returns and pay taxes.
Remember, a power of attorney should only grant as much power as necessary to meet your needs, and your agent should always act in your best interests. A well-crafted power of attorney will strike a balance between enabling your agent to act effectively and protecting you from potential abuse.
Executing a Power of Attorney
Before executing a POA you should review all places throughout the document that require your personalized information. Don’t just print a form and sign it!
Under New Jersey law, to be valid, the POA must be executed by a principal who has the necessary capacity to manage property and finances. The principal must sign the power of attorney, and that signature must be acknowledged before a person authorized to take such acknowledgements such as a notary public or an attorney licensed in New Jersey.
Revoking a Power of Attorney
Your power of attorney terminates in the following situations:
- Your death (at which point your executor would take control);
- Your incapacity IF the POA is not durable;
- You formally revoke the POA;
- The power of attorney terminates by terms stated within the instrument.
If you revoke your POA, you should also provide notice to everyone involved.
In short, a power of attorney is an essential part of your estate plan. This document is very powerful and great care must be taken to make sure it is prepared correctly. For more information on how a power of attorney can help you, please contact us.