It's best to know the difference between different types of Powers of Attorney before you need one, or more, of these important documents.
It may be more fun to chat about exotic vacation getaways, but you will be better prepared for eventual situations if you have a basic understanding of the different types of estate planning documents. According to NJ 101.5, in “Understanding power of attorney documents,” this will also help make sure that your own wishes are carried out if you are not able to speak for yourself.
A power of attorney (POA) is a legal document that’s used to give a trusted friend or family member (known as the attorney-in-fact or agent) the authority to act on your behalf on financial or legal matters. You can specify the scope of powers, which can be very broad or limited.
You’d typically use a POA if you need help with a single task, like requiring someone to represent you in a legal matter that you can’t attend to yourself. When that’s done, the agent’s powers automatically end. In addition, your agent can’t act on your behalf if you become incapacitated even though you’re not able to act for yourself.
Although there may be instances where this arrangement is preferred, a durable power of attorney (DPOA) is the right document to use when the agent’s powers need to endure while you are incapacitated. As an example, a senior might be concerned about his or her capacity diminishing over the years, so they designate a family member as agent in a DPOA to help them with day-to-day finances.
You can revoke a POA or DPOA at any time, provided you’re not incapacitated. If you are, the DPOA is still valid, and you no longer have capacity to revoke it. In all situations, your agent’s power stops upon your death.
A DPOA can give you and your family peace of mind that you have a trusted individual selected to handle your affairs in an emergency. This also saves time and the expense of a legal proceeding to get someone appointed to take care of your affairs.
Unless you specify otherwise, your agent’s powers are effective immediately upon execution of the document, although you are still able to manage your own affairs. In some circumstances, it is preferable for the agent’s powers to be predicated on a certain event, which is called a “springing” power of attorney. You might use a springing power if the agent is a non-spouse.
Do not be surprised if a bank or other financial institution initially rejects the power of attorney. Unfortunately, this is a fairly common occurrence and you may need the help of an estate planning attorney to navigate this successfully.
Reference: NJ 101.5 (August 22, 2016) “Understanding power of attorney documents”