Many people, especially as they get on in their years, choose to give a Power of Attorney (“Power”) to a friend or relative in whom they have confidence. This allows the holder of the Power to take care of the financial affairs in the event of illness or other disability of the Grantor of Power. The Power may avoid a family member the heartache and expense of filing an application with a court to be appointed as guardian or receiver of one’s finances.
The effectiveness of a Power depends a great deal upon the willingness of the bank or other institution to honor the Power. For that reason, it is recommended that a Power be updated at least every five years. Financial institutions frequently fail to honor older Powers on the grounds of “staleness.”
What Should the Power Contain?
1. Authority of the Agent
The Power should outline what actions you wish your Agent to take on your behalf. Generally, the Agent should be given full authority to handle all of your financial affairs as if he or she was you. In essence, the Agent will “step” into your shoes and pay your bills, file your tax returns, deposit checks, etc.
2. Selection of the Agent
The Agent is the person whom you give the authority to exercise control over your financial affairs. You should only give a Power to someone in whom you have trust and confidence to handle your affairs responsibly. The person you select can be a family member, friend or professional such as an accountant or attorney.
3. It Must Be Durable
The Power should be “durable” under New Jersey law. To be “durable,” the Power must provide that the powers granted continue even if you become disabled or incompetent. This is extremely important because it is when you are disabled or incompetent that you want the Power to be effective so that your Agent can handle your financial affairs. If a Power is not durable, then the Power is deemed invalid when the person becomes disabled or incompetent.
How Does the Power of Attorney Help Your Family?
The execution of the Power serves two other important purposes. First, it allows your financial affairs to be handled while you are disabled. Without a Power, your family may be forced to file an action in court and ask the judge to grant someone the power to handle your affairs. Second, it allows you to select the person whom you want to handle your finances.
How Do I Know That My Agent Will Act in My Best Interests?
The Agent must utilize all of your funds for your benefit. The Agent cannot spend any monies on third parties or him or herself unless you permit such use under the Power.
Can the Agent Make Gifts to My Family and Charities?
If you wish your Agent to continue giving to charities or family members and friends, then the Power must specifically state that the Agent has the authority to continue making such gifts on your behalf.
A Durable Power of Attorney should be a basic part of everyone’s estate and life planning.
The information presented in this article is not legal advice and does not create an attorney-client relationship with Bourne, Noll & Kenyon.