Estate planning documents generally deal with the disposition of assets after death. However, one of the more important documents, a Power of Attorney, deals with the handling of an individual's affairs during life. If an individual becomes incapacitated or is simply unavailable due to illness, travel or any other reason, a properly drafted Power of Attorney can provide a means for resolving lifetime planning issues at a critical time.

A Power of Attorney is a document in which an individual (the “principal”) designates another individual as an “agent” or “attorney-in-fact” to perform certain transactions on the principal's behalf. In most instances it becomes effective upon signing, but it can also be drafted to take effect at a later date, upon the happening of a specified event – a “springing” power. The most common example of a “springing” power is one that becomes effective upon the written certification of the principal’s incapacity by a duly licensed physician. In many instances, a spouse, child or other close family member is designated as the attorney­in-fact. Factors to consider in appointing an agent include trustworthiness, good judgment and availability. At the time of execution, the principal must possess the requisite mental capacity to understand the nature and importance of the act of execution.

Generally, a Power of Attorney should be drafted to be “durable” by providing that “this durable Power of Attorney shall not be affected by my subsequent incapacity or incompetence.”

A Power of Attorney can name a single agent or multiple agents who may act alone or who are required to act together.

A Power of Attorney can be a general power or alternatively, can be limited to specific powers, such as, any and all acts in connection with the purchase of a certain real property.

A Power of Attorney cannot be used to make medical or other health care decisions. These decisions may be made, instead, by an agent under a Health Care Directive (New Jersey) or a Health Care Proxy (New York).

An agent under a Power of Attorney has a fiduciary duty to act in accordance with the principal’s instructions and in the best interest of the principal. An agent must keep the principal’s property separate from the agent’s property and must keep a record of all the agent’s actions under the Power of Attorney. In New York, the principal may appoint a “Monitor” to oversee the actions of the agent.  

Unless the principal specifically provides for compensation of the agent, the agent is not entitled to compensation but is entitled to be reimbursed for reasonable expenses incurred in connection with the performance of the agent’s duties.

Execution of a Power of Attorney does not automatically revoke a previously executed Power of Attorney unless the principal specifically provides otherwise.

A Power of Attorney can be an effective way to avoid a costly guardianship proceeding when an individual loses mental capacity. A properly drafted Power of Attorney can provide certainty about who will handle a person’s affairs if, for whatever reason, the principal becomes disabled or is unavailable. It is inexpensive to create and, unlike a revocable trust, does not require the principal to transfer property to the attorney-in-fact. On the other hand, third parties (banks, brokers) may be reluctant to deal with an attorney-in-fact under any Power of Attorney other than their own form. Additionally, the validity of a Power of Attorney may be called into question with the passage of time.

In conclusion, a Power of Attorney should be an integral part of an individual’s estate plan. However, because it can be a very powerful document, great care should be taken when executing a Power of Attorney and when choosing an agent.