The Power of Attorney (POA) is one of the most important documents to have in your estate plan. It allows you to appoint a person, known as an attorney-in-fact, to step into your shoes and make decisions on your behalf. You have flexibility in drafting a power of attorney and may grant as much or as little power as you determine appropriate.
There are generally three types of POAs. They can be drafted to meet your specific needs, and you may, in fact, have more than one power of attorney. The three types of POAs are:
Limited Power of Attorney
A limited POA grants very narrow and limited rights to the attorney-in-fact. It may set out specific situations where the attorney-in-fact can act on your behalf. For example, it may be set up so that the attorney-in-fact can only act on your behalf regarding the sale of a specific piece of real estate. The limited power of attorney may also be set up to apply for a specific period of time, such as two weeks while you are out of the country on vacation.
General Power of Attorney
This type of power of attorney is the most expansive and grants a wide range of powers. The person you appoint as the attorney-in-fact can act in a variety of situations, including handling and accessing your financial matters.
This type of power of attorney is generally effective as soon as it is executed and will stay in effect until you either rescind the document or become incapacitated.
Durable Power of Attorney
Like the general power of attorney, the durable power of attorney grants very broad and expansive rights to the attorney-in-fact. The main difference between the general power of attorney and the durable power of attorney is that a durable power of attorney will remain valid even after you become incapacitated. This would allow the attorney-in-fact to continue to take care of your matters if you develop dementia or have a catastrophic or debilitating health emergency.
All power of attorneys are effective immediately upon signing unless you make them “springing.” If a POA has a” springing” clause, it will only come into play when that event occurs. The most common springing clause is seen in a durable power of attorney that is only effective (springs) once you have been deemed incapacitated. The downside with these provisions is that you may need documentation from a doctor to determine your incapacity. This can be tricky and time-consuming, leading to delays in handling your affairs.
There are risks associated with a POA that can include fraudulent transactions by the attorney-in-fact to forgeries of the document. It is very important to make sure that you not only choose a trustworthy person to act as the attorney-in-fact but also that you have protective measures drafted within the document. Some examples include:
- Requiring monthly or quarterly reports to a third party.
- Requiring that the attorney-in-fact be bonded.
- Appointing joint attorney-in-facts
- Clearly explaining the extent of the person's power within the document.
- Making sure that advisors and family know of the POA.
If the POA is effective immediately, be vigilant and monitor your accounts. New Jersey allows you to revoke your POA or make changes as long as you are not incapacitated. Always re-evaluate your needs.
Need Help? Contact a Skilled Attorney
It is important to understand the different types of POAs and how they fit into your estate plan with your Last Will and Testament, Advanced Healthcare Directives and any Trusts you may have. A qualified attorney can help you decide what type of power of attorney is best for you. Contact our office today.
