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Planning for one’s future death or incapacitation is a difficult but necessary thing that we all must do, or else we risk leaving our families to handle our affairs without the authority to do so, or the knowledge of our wishes. There are three aspects of this creating a power of attorney that all good estate plans should include:
- Planning for how one’s assets and minor children will be taken care of after they pass away – this is done through the last will and testament
- Planning for how one’s healthcare will be managed if they ever become so ill that they cannot communicate with doctors – this is done through the advance directive
- Planning for how one’s finances will be managed if they are ever incapacitated or otherwise unable to manage their finances themselves – this is done through a durable power of attorney
This article will focus on the durable power of attorney – what it is, how it is created, and what to look out for when making it. Read on to find out everything you need to know about creating this document and using it to prepare yourself and your family for the future.
What Is a Durable Power of Attorney?
“Power of attorney” is a general term used to describe various legal documents which authorize a person or institution (the “agent”) to perform certain acts on behalf of the person creating the document (the “principal”). In New Jersey, the law allows for this document to be “durable,” meaning that it would remain in effect even after its principal becomes incapacitated.
Why would someone need this document? The primary answer to this question is so that they are able to continue having their finances managed even when they are not available to be the person managing them. For example, if a person were to get into an accident and fall into a prolonged state of unconsciousness, depending on their life circumstances, they would need someone to:
- Make timely mortgage payments
- Pay vendors to maintain a business
- Withdraw or deposit money from a bank account
- Access safe deposit boxes
- Manage government benefits
These are just a few common examples. Everyone’s life is different, and some people may need to authorize an agent to deal with more complicated situations like handling corporate stock buyouts, managing cryptocurrencies, creating a trust for tax planning purposes, or any other situation that would create a need for someone to deal with a financial situation in the principal’s life.
Luckily, in New Jersey the durable power of attorney can be as broad or as specific as its creator desires. Many people will give their spouse or a close family member sprawling access to handle any financial situation that may arise. Others may authorize someone to deal with just a specific situation, such as maintaining the family home. The best way to determine how much authority an agent should be given in this document is to speak with an experienced attorney who can discuss potential issues with the principal and plan accordingly.
When Does the Power Go into Effect?
There are two options for the principal to consider when determining when their durable power of attorney will become active and authorize their agent to manage their finances:
- Immediately upon signing the document
- Only when the principal is incapacitated
When determining which option to choose, the principal needs to consider a few things. First, who will be their agent? Depending on the amount of access granted to them, this person could have tremendous power to control the finances of the principal, and therefore needs to be someone they fully trust. This is especially true if they anticipate this power being used while they are either unconscious or otherwise unavailable to oversee any actions taken by the agent.
If the principal is naming someone they completely trust to be the agent, they may feel comfortable in giving them immediate authority upon signing of the durable power of attorney. But this begs the question – if the principal is not incapacitated, why would they give anyone else this authority?
The answer revolves around the requirements to prove incapacitation. Generally speaking, the durable power of attorney is created in anticipation of the principal becoming incapacitated at some future date. Usually this is due to failing health or mental illness caused by advanced age or other ailments. So when the document is actually needed it’s likely that the agent, who is often a family member, will be dealing with the stress of having their family member’s health fail.
If at this time it becomes necessary to manage this person’s finances, the agent will need to use the durable power of attorney. If the principal has chosen to make the power of attorney effective immediately upon its signing, then their agent can immediately begin managing their finances without any further steps. However, if this power of attorney was made to be “springing,” or only coming into effect upon the principal’s incapacity, then this incapacity will need to be proven prior to the power of attorney going into effect.
How is proving this accomplished? Typically, it involves getting at least one (and sometimes more than one) physician to examine the principal and sign off, thereby confirming the person is lacking the capacity to manage their own financial affairs. As you can imagine, this is a difficult standard to discern, and if the principal is suffering from a mental illness like dementia, they may not be inclined to give up their power over their finances, even if it is in their best interest.
For this reason, it may be advisable to create a durable power of attorney that goes into effect immediately, but only if the principal is comfortable with giving this much power to their chosen agent. Prior to doing so, it is best to speak with an attorney who can spot any potential issues or red flags that need to be addressed before the document is created.
How Is a Power of Attorney Created or Revoked?
In New Jersey, a durable power of attorney for finances is considered legally valid when it has been signed by the principal in the presence of a notary public. While not required by law, the document should also be signed by two witnesses who can attest to the sound mind of the principal at the time of signing. This will preclude any future claims that the document is invalid because of the state of mind of its creator at the time of its creation.
New Jersey law designates a few methods for revoking a power of attorney. It can be revoked by:
- Destroying all signed originals of the document
- Delivering a written notice of revocation to the agent, or
- Signing a notarized statement of revocation
It’s important to note here that creating a new power of attorney does not result in an automatic revocation of the previously created ones. Furthermore, until proper notice is given to an agent acting under the authority of this document, they are legally allowed to continue using the powers granted to them by the power of attorney.
If you’re unsure whether a power of attorney you have created or are authorized to use is currently valid, or you need to revoke an already created power of attorney, it’s best to consult with an attorney to make sure that everything is done in accordance with the law.
Why Hire an Attorney?
It’s always difficult to contemplate one’s possible future incapacity and how to deal with managing one’s affairs when this occurs, but planning for this situation ahead of time is much more favorable than leaving your family to deal with it while also suffering the distress of having a family member with ailing health.
At Rosenblum Law, we’ll work with you to create a plan that covers all of your bases and leaves your family prepared to take on any situation and manage your affairs in the way you wish. Call us now to get started with a free consultation.
How to Cite Rosenblum Law’s Article
Scott Glatstian (Aug 2, 2022). Creating a Power of Attorney for Finances in New Jersey. Rosenblum Law Firm, https://rosenblumlaw.com/estate-planning/nj/power-of-attorney/
Scott Glatstian "Creating a Power of Attorney for Finances in New Jersey". Rosenblum Law Firm, Aug 2, 2022. https://rosenblumlaw.com/estate-planning/nj/power-of-attorney/