One of the top reasons people put off making an estate plan, especially if they are on the younger side, is because no one really wants to think about their own demise. However, what many don’t realize is how relevant and necessary a Power of Attorney (POA) can be for matters that can arise during one’s lifetime.
Here’s a common example. Let’s say you’re overseas on a trip to Israel. Your wife needs to take cash out of your bank account to pay the cleaning lady. However, you forgot to put your wife’s name on the account. Without a POA your wife won’t be able to access those much-needed funds. (Read on for some more examples.)
What Is a Durable Power of Attorney?
A “power of attorney” is a legal document which authorizes a person or institution (the “agent”) to perform certain acts on behalf of the person creating the document (the “principal”).
Why would someone need this document? The primary answer is so that they are able to continue having their finances managed even when they are not available to manage them. For example, if a person were to be rendered unconscious, they would likely need someone to:
- Make timely mortgage payments
- Pay vendors to maintain a business
- Withdraw or deposit money from a bank account
- Access safe deposit boxes
- Manage government benefits
These are just a few common examples. Everyone’s life is different, and some people may need to authorize an agent to deal with more complicated situations like handling corporate stock buyouts, managing cryptocurrencies, creating a trust for tax planning purposes, or any other situation that would create a need for someone to deal with a financial situation in the principal’s life.
Luckily, in New Jersey the durable power of attorney can be as broad or as specific as its creator desires.
When Does the POA Go Into Effect?
There are two options for the principal to consider when determining when their durable power of attorney will become active and authorize their agent to manage their finances:
Immediately upon signing the document
Only when the principal is incapacitated
When determining which option to choose, the principal needs to consider a few things. First, who will be their agent? Depending on the amount of access granted to them, this person could have tremendous power to control the finances of the principal, and therefore needs to be someone they fully trust. This is especially true if they anticipate this power being used while they are either unconscious or otherwise unavailable.
If the principal is naming someone they completely trust to be the agent, they may feel comfortable in giving them immediate authority upon signing of the durable power of attorney. But this begs the question – why would they give anyone else this broad degree of authority?
The answer revolves around the requirements to prove incapacitation. Generally speaking, the durable power of attorney is created in anticipation of the principal becoming incapacitated at some future date. Usually this is due to failing health or mental illness caused by advanced age or other ailments. So when the document is actually needed it’s likely that the agent, who is often a family member, will be dealing with the stress of having their family member’s health fail.
If at this time it becomes necessary to manage this person’s finances, the agent will need to use the durable power of attorney. If the principal has chosen to make the power of attorney effective immediately upon its signing, then their agent can immediately begin managing their finances without any further steps. However, if this power of attorney was made to be “springing,” or only coming into effect upon the principal’s incapacity, then this incapacity will need to be proven prior to the power of attorney going into effect. This involves getting at least one (and sometimes more than one) physician to examine the principal and sign off, thereby confirming the person is lacking the capacity to manage their own financial affairs. As you can imagine, this can be a difficult standard to meet.
For this reason, it may be advisable to create a durable power of attorney that goes into effect immediately, but only if the principal is comfortable with giving this much power to their chosen agent.
Why Hire an Attorney?
It’s always difficult to contemplate one’s possible future incapacity and how to deal with managing one’s affairs when this occurs, but planning for this situation ahead of time is much more favorable than leaving your family to deal with it while also suffering the distress of having a family member with ailing health.
Adam (Chananya) Rosenblum
