The Power of Attorney is an important part of lifetime planning. Valid in all states, these documents give one or more persons the power to act on your behalf. The power may be limited to a particular activity (e.g., closing the sale of your home) or general in its application, empowering one or more persons to act on your behalf in a variety of situations. It may take effective immediately or only on the occurrence of a future event (e.g., a determination that you are unable to act for yourself). The latter are “springing” powers of attorney. It may give temporary or continuous, permanent authority to act on your behalf. A Power of Attorney may be revoked, but most states require written notice of revocation to the person named to act for you. See www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/power_of_attorney.html
In the absence of a Power of Attorney or other legal arrangement to distribute property if you become disabled, your spouse, family, or partner cannot pay your bills or handle your assets. The result can be lengthy delays.
The term “durable” in reference to a Power of Attorney means that the power remains in force for the lifetime of the principal, even if he or she becomes mentally incapacitated. The Power of Attorney can be effective immediately on signing or only on disability. A principal may cancel a Power of Attorney at any time for any reason. Powers granted in a Power of Attorney document can be very broad or very narrow in accordance with the needs of the principal. A durable Power of Attorney stays in effect even if someone becomes disabled.
Why Is Power of Attorney So Important?
Every adult has day-to-day affairs to manage, such as paying the bills. Many people are under the impression that, in the event of catastrophic illness or injury, a spouse or child can automatically act for them. Unfortunately, this is often wrong, even when joint ownership situations exist. A Power of Attorney allows your partner or another person to administer your assets during your lifetime, either on disability or now.
The lack of a properly prepared and executed Power of Attorney can cause extreme difficulties when an individual is stricken with severe illness or injury rendering him or her unable to make decisions or manage financial and medical affairs. States have detailed, expensive legal procedures, called guardianships or conservatorships, to provide for appointment of a guardian. These normally require lengthy, formal proceedings in court and are expensive. This means involvement of lawyers to prepare and file the necessary papers and doctors to provide medical testimony regarding the mental incapacity of the subject of the action. The procedures also require the involvement of a temporary guardian to investigate, even intercede, in surrogate proceedings. This can be slow, costly, and very frustrating. In addition, the domestic partner can be challenged in a guardianship by the incapacitated person’s family members.
Advance preparation of the Power of Attorney could avoid the inconvenience and expense of guardianship proceedings. This needs to be done while the principal is competent, alert, and aware of the consequences of his or her decision. Once a serious problem occurs, it is usually too late.
Counsel clients against using cheap online forms. Banks often will not honor the forms unless they have reference to the state statute. For example, in New Jersey we advise clients not to use a form purchased online.
A Power of Attorney should contain a reference to the applicable state statute requiring banks to honor the Power of Attorney. Section 2 of P.L. 1991, c. 95 (c. 46:2B-11).
With a valid Power of Attorney, your agent can take any action permitted in the document. Often your agent must present the actual document to invoke the power. For example, if another person is acting on your behalf to sell an automobile, the motor vehicles department generally will require that the Power of Attorney be presented before your agent’s authority to sign the title will be honored. Similarly, an agent who signs documents to buy or sell real property on your behalf must present the Power of Attorney to the title company. The same applies to sale of securities or opening and closing bank accounts. But your agent generally should not need to present the Power of Attorney when signing checks for you.
Why would anyone give such sweeping authority to another person? One answer is convenience. If you are buying or selling assets and do not wish to appear in person to close the transaction, you may take advantage of a Power of Attorney. Another important reason to use powers of attorney is to prepare for situations when you may not be able to act on your own behalf because of absence or incapacity. Such a disability may be temporary (e.g., because of travel, accident, or illness) or it may be permanent.
If you do not have a Power of Attorney and become unable to manage your personal or business affairs, it may become necessary for a court to appoint one or more people to act for you. People appointed in this manner are referred to as guardians, conservators, or committees, depending on your local state law. If a court proceeding, sometimes known as intervention, is needed, then you may not have the ability to choose the person who will act for you. With a Power of Attorney, you choose who will act and define their authority and its limits, if any. Guardianships and other court proceedings are very expensive and time consuming.
There are helpful clauses and definitions in the Uniform Probate Code Article 5B Uniform Power of Attorney Act (2006). As of 2015 the following states have adopted all or part: Alaska, Arizona, Colorado, Hawaii, Idaho, Maine, Massachusetts, Michigan, Minnesota, Montana, Nebraska, New Jersey, New Mexico, North Dakota, South Carolina, South Dakota, U.S. Virgin Islands, Utah. See www.uniformlaws.org/shared/docs/probate%20code/upc%202010.pdf.