Don't Wait Until It's Too Late! Set up Durable Power of Attorney
A durable power of attorney is a legal document that you should set up long before you ever need it. In it you empower an individual to act on your behalf during your lifetime. Concerned with financial and personal matters, the durable power of attorney takes effect regardless of your mental condition.
Many things in life need to be decided in advance, but none more so than durable power of attorney. Why is this legal document so important? Because in it you indicate who will handle your finances and make decisions for you while you are of sound mind and body, or should you become mentally or physically incapacitated. This trusted individual is known as your agent.
Once you have decided to arrange for a durable power of attorney, how do you choose your agent? Since this individual will be stepping into your shoes to undertake as many or as few of your financial and property matters as you decide, you must choose someone whom you trust absolutely, who has the ability to manage money, and is at least 18 years of age. Moreover, you must set up a durable power of attorney while you still have the mental capacity to sign a legal document and to make decisions for yourself. Once you can no longer do this, it is too late to give anyone else the authority to do so. Your wishes regarding bank accounts, financial transactions or real estate dealings could be largely ignored or unknown.
Normally people choose a trusted family member, spouse, friend or legal advisor for their agent. What’s crucial to note here is that if you would like your spouse to manage your affairs in circumstances foreseen and unforeseen, you must arrange in advance for him or her to have a durable power of attorney. Lingering in the mind of the public is the misperception that your spouse can automatically sign documents for you if you are mentally or physically incapacitated, but this is not the case.
One of the great benefits of the durable power of attorney instrument is its flexibility and convenience. When your durable power of attorney takes effect and the powers that you grant your agent can be as broad or as narrow as you choose. For example, you can be completely competent to manage all your affairs, but choose to give your agent power immediately because you would like him or her to act on your behalf if you are on vacation, out of the country, or sick. For a couple who moves to Florida to retire, it is much more convenient to have their New Jersey-based son, who is their agent, sell their New Jersey home.
By the same token, you can grant your agent power that becomes effective only in the future, whether you remain competent to handle your own affairs, or not. In either case, the powers that you grant your agent are completely up to you and can encompass as many or as few tasks as you designate. Some of the powers that you can give your agent include the authority to sign checks, make deposits, pay bills, file tax returns, make health decisions (the subject of another article), sell property, or invest money. You can also empower your agent to hire individuals to manage your business and personal matters, whether it is as simple as lawn mowing or as complex as investment advising. The only restriction is that your agent cannot write and sign a will for you, and his or her powers become void upon your death. Whatever powers you designate, you can also revoke at any time.
How is a durable power of attorney different from a power of attorney that is not durable, and why is appointing a durable power of attorney so much more important to your future? If you were to grant a non-durable power of attorney to your agent, it would only become effective only upon your showing signs of mental incapacitation. This means that if you are physically incapacitated, your agent does not have the authority to act upon your behalf. As the following example shows, a non-durable power of attorney is not at all flexible.
When an elderly widower was hospitalized and physically incapacitated for several weeks, he was unable to rollover a CD and pay the premium on his life insurance policy in time. Because he had previously arranged for his daughter to have a non-durable power of attorney only, she could not carry out either of these tasks for him. She was neither able to take advantage of a new CD offer with a better rate, nor was she able to prevent the life insurance policy from lapsing. Had the father arranged for his daughter to have a durable power of attorney, she would have been able to act on his behalf in both of these matters.
Finally, a durable power of attorney is a much more affordable than the alternative: setting up a guardianship. If you’ve already planned for a comprehensive, durable power of attorney, and you become mentally incapacitated, the need for a guardianship is obviated. Establishing up a guardianship can take months of court time and medical testimony, as well as costing thousands of dollars.
Ultimately, it is up to you and your lawyer to decide how to best ensure that your affairs, whether in the present or the future, are managed according to your wishes. A well planned durable power of attorney can do just that.
ABOUT THE AUTHOR
Nicholas Giuditta is a trust and estates attorney in Westfield, NJ. He prepares estate plans for high net worth individuals to help them protect their loved ones and preserve their assets.