While some would say that discussions about estate planning documents makes for a dull conversation, it is important that you understand the various functions of estate planning documents so that your documents will work when needed. If your ultimate estate plan is a will then it must be accompanied by a power of attorney. Why? Because wills, unlike trusts, are only effective when you die. Therefore, a will does not address any of the actions that will need to be taken if you become incapacitated. That legal document is known as a power of attorney (POA). Generally, we make a trusted friend or family member our attorney-in-fact or agent giving them the authority to act on our behalf on financial or legal matters. You can make the scope of their powers either very broad or limited.
In a situation where your incapacity is not the reason you’d like to empower someone to act on your behalf, you might provide your attorney-in-fact with a limited POA so that a single task can be performed, such as having them sign the deed to sell an out-of-state piece of property. After the signing of the deed, that attorney-in-fact’s powers automatically end. In most cases, a limited power of attorney restricts your attorney-in-fact from taking any action if you become incapacitated. That’s where the word “durable” comes in to play. A durable power of attorney is effective even when you not able to act for yourself.
Obviously, 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, seniors might be concerned about their 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 (requiring court intervention) 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. This springing power is very common in Healthcare Powers of Attorney because most of us do not want to place our loved ones in the position of making life and death decisions unless we have no ability to make those decisions for ourselves. This is why so many states have eliminated the need for one’s healthcare agent to determine when it is time to ‘pull the plug’ Hopefully, you have made that decision in a separate document known as a living will.
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Reference: NJ 101.5 (August 22, 2016) “Understanding power of attorney documents”