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Durable Power Attorney

Use A Durable Power of Attorney To Avoid Problems

Although it does happen, it is a rare event when I suggest that a client not sign a Durable Power of Attorney (DPOA), a document that creates a legal, enforceable relationship between the person who signs it (known as the "principal") and the person who acts for the principal (known as the "agent," "attorney-in-fact," or "personal representative"). It is important to note that a DPOA is freely revocable at any time before you become incapacitated. After that, a judge who finds cause may revoke the authority granted in the DPOA.

When you, as principal, sign a Durable Power of Attorney you authorize your agent to manage your finances and property in your best interests. The agent owes a fiduciary duty to you and your heirs to act prudently under all the circumstances for you. An agent who engages in self-dealing and who raises his own interests above your interests or the interests of your other family members may be subject to civil and criminal penalties.

A well-drafted DPOA tends to avoid the need for a person to ask a court to declare you incompetent and for an order of Guardianship. Such a proceeding wastes time and money that can be better used for your benefit.

There are a variety of cases in which a DPOA may be necessary. Consider these examples. (1) If you and your spouse own any real property together you probably own it as tenants by the entirety. If so, neither of you may sell, mortgage or otherwise affect legal title without the consent of the other. If one of you becomes incapacitated and the other needs to sell the property or refinance, the healthy spouse will have to seek an order of guardianship from the court before conducting the transaction. (2) Some individuals create a joint bank account in place of signing a DPOA; this can cause more problems than it avoids.

In many situations lifetime gifts represent a valuable asset-protection and estate-planning technique. The existence of a valid, well-drafted DPOA that includes an appropriate authority to make gifts may facilitate the implementation of the plan. The law in New Jersey is clear: an agent under a DPOA that does not specifically grant the authority to make gifts legally may not make gifts.

The most important qualifications for an agent are trustworthiness and an understanding of the agent's fiduciary duty. Too often the agent misuses his "power" to the detriment of the principal and the principal's family. The agent's inability or refusal to act responsibly may result in acrimony among the family members along with prolonged, emotional and expensive court proceedings. Competent professional advice can go a long way to avoiding very serious problems.