Do I Need a Power of Attorney?

On of the most frequently asked questions when we discuss an estate plan is whether the client needs a power of attorney. In general, the answer is “yes’, but like so many other issues in the law, it depends on the different factual situations.

Before we can determine whether a power of attorney is necessary or desirable, we should first outline what a power of attorney is and how it works.

A power of attorney is a written document by which a person gives to another the right and power to make decisions. The person who gives the power of attorney is called the “maker” or “principal”. The person to whom the power is given is called the “agent” or “attorney-in-fact”. The written document is referred to as the “power of attorney”. The power of attorney can be either broad or it can be limited. An example of a broad power of attorney is one in which the maker gives to the attorney-in-fact all of the powers which the maker has. A limited power of attorney is one in which the maker gives only some special powers. For example, a wife may give to her husband the right to sign documents to allow the husband to sell property on behalf of the wife. In this case the power to act is limited to carrying out the acts necessary to carry out the sale of the property. The husband has no power to do anything else on the wife’s behalf. Once the property is sold, the power of attorney to the husband ceases to be effective.

In the old days, a power of attorney was valid so long as the maker was alive and competent. If the maker died or ceased to be competent, the power of attorney ceased to be effective. Today, if the maker dies, the power of attorney still dies with him or her. However, the law has changed to allow a power of attorney to remain effective if the maker becomes incompetent. This is called a “durable power of attorney”. Durable powers of attorney have become very popular in order to allow a person to appoint another to carry out their affairs if the maker should become incompetent to act on their own behalf. With the growing senior population in Ocean County and the rest of New Jersey, there needs to be some mechanism for people to allow others to carry out their affairs in the event that they should become incompetent.

If a person becomes incompetent and there is no power of attorney, in most cases, a family member or friend may have to go to court and seek to have the court appoint them as a guardian over the incompetent person. This procedure is both time consuming and expensive. A typical guardianship procedure may take 60 days or more and cost approximately $2,500.00. Furthermore, the court may appoint a guardian who is not your choice.

We recommend to all of our estate planning clients that they consider signing a power of attorney so that someone of their choice will be able to take care of their affairs in the event that they are not able to do so themselves. For those persons who have substantial liquid assets in excess of one million dollars, they may also wish to consider a more sophisticated estate planning tool such as a living trust. That is an issue for another column.

If you have any questions about powers of attorney or other estate planning tools, please contact our office.

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