A Power of Attorney is a powerful document. It gives a person (Agent or Attorney-in-Fact) the authority to act on behalf of another (Principal). Its purpose is to notify third parties that the Principal has given the Agent authority to act on the Principal’s behalf in certain situations. APower of Attorney can be limited in scope and time and can address very specific situations or can be broad enough to cover anything a Principal wants its Agent to handle for him or her.
In real estate, typically a Power of Attorney is often used for the purposes of signing closing documents, obtaining closing funds and otherwise acting on the Principal’s behalf in a very limited scope, i.e., to finalize the real estate closing. Once the closing is concluded, the Power of Attorney is generally extinguished. In the Estate Planning arena, a Durable Power of Attorney is an essential document. The Durable Power of Attorney takes effect either: (1) immediately upon execution regardless of disability, or (2) upon disability of the Principal. Disability can be defined within the Power of Attorney document or if not, then the statutory concept applies, i.e., that the Principal is unable to manage his property and affairs effectively. The Power of Attorney must be “Durable” to survive during disability. The importance of the Durable Power of Attorney becomes apparent after the Principal becomes disabled. The most significant aspect is that the Principal has already predetermined who he or she wants to act as their Agent. It also avoids the costly process of applying to the court for a guardianship or conservatorship. In short, having a Durable Power of Attorney can save time, expense and the inconvenience of a court proceeding.
The powers a Principal can grant to an Agent under a Power of Attorney are numerous and can include the authority to: (1) conduct banking transactions, (2) pay for support and care, (3) handle tax filings, (4) collect Social Security benefits, (5) enter into contracts, (6) settle claims or controversies, (7) sell, gift or transfer assets, (8) borrow money, (9) deal with insurance and retirement benefits, (10) exercise stockholder rights, (11) disclaim property, (12) engage in Medicaid planning, and (13) obtain medical information and communicate with medical providers. New Jersey statutes require that the power to gift and the right for the Agent to receive compensation be specifically enumerated in the document, otherwise those powers will not be available to the Agent. All other powers listed in the statutes are available to the Agent even if they are not specifically referenced in the document.
Since the powers that can be granted to an Agent are very broad and involve assets, it is important that the Principal choose someone they trust will follow their wishes and act in their best interest. Generally, a spouse or an adult child is appointed the Agent. As the Power of Attorney is such a powerful document, some clients name their accountant or attorney as Agent. It is also important to have a second Agent named in case the primary Agent is unwilling or unable to act.
It is imperative that an individual consult with an attorney prior to entering into a Power of Attorney, so that there is an understanding of what powers are being given and when. An attorney will also ensure that the required statutory language is incorporated into the document, especially if the Principal intends to enter into a Durable Power of Attorney.
Jill F. Rosenfeld is an Associate practicing in WJ&L’s Tax, Trust and Estates, Business and Corporate Departments.