power of attorney

April 23, 2012 by Rebecca Esmi

Revocation of a POA

A principal may revoke a POA at any time by employing one of three methods. First, the principal may physically destroy all executed originals. Second, he or she can sign and acknowledge a written revocation (per R. S. 46:14-2.1). Finally, the principal may revoke by notice to the attorney in fact.

It should be noted that simply appointing another in a later POA does not in itself revoke an earlier POA, unless the subsequent POA expressly provides. N.J.S.A. 46:2B-8.10.

Prudence dictates that the principal maintain a list of the person or people to whom an original has been given.

April 23, 2012 by Rebecca Esmi

And now…. about those powers

New Jersey law does not specify powers conferred by default. Prudence therefore dictates that all powers required be included.

Special attention should be paid each and every power which must be included, but special-special mention must be made of gifts and banking.

(1) Gifts. The power to gift could be controversial as potentially anti-fiduciary; however, it is a mighty sword in the estate planning arena as a means of mitigating taxes. In order for the I.R.S. to acknowledge a transfer as a gift made pursuant to a POA, the POA must specifically authorize the attorney in fact to make gifts on the principal’s behalf. While there are potential exceptions, they are limited; further, courts in particular construe POA language strictly.

(2) Banking. All the statutorily-provided banking powers set forth in N.J.S.A. 46:2B-10 et seq. are incorporated by reference into the POA simply by including the required language: “conduct banking transactions as set forth in Section 2 of P.L. 1991, C. 95 (C.46:2B-11).”

The statute also delivers several other benefits. If the attorney in fact is a spouse or blood-relative of the principal, there is no expiration date. If the attorney in fact is neither, then a ten-year stale-date period applies. N.J.S.A. 46:2B-13(b). It also provides that the bank may retain a POA copy, so long as it has seen the original. In the alternative, the bank must accept an affidavit from the attorney in fact stating that the original is unavailable along with a certified copy.

April 23, 2012 by Rebecca Esmi

The Attorney in Fact as a Fiduciary

A fiduciary has very big shoes to fill. A fiduciary must put the principal first. In other words, the Attorney in fact must put the principal before him- or herself at all times, despite any temptation or self-interest. The Attorney in fact must while acting as fiduciary ensure that actions undertaken are authorized by the POA. See N.J.S.A. 46:2B-8.13(a).

An Accounting is a report of financial transactions. An Attorney in fact is required to provide an Accounting upon demand, pursuant to N.J.S.A. 46:2B-8.13(b). Thus, each Attorney in fact is required to maintain a record of all the various and sundry transactions undertaken on the principal’s behalf, pursuant to N.J.S.A. 46:2B-8.13(b). An Attorney in fact would be well-advised to retain the record many years since questions could arise years later. A whole cast of characters can demand an Accounting; to name several of the most common: The Principal, guardian of the principal (if the principal is adjudicated incapacitated), personal representative, beneficiaries, and heirs of the principal’s estate.

April 23, 2012 by Rebecca Esmi

Selection of an Attorney in Fact and risk-mitigation

An Attorney in fact has power over the principal’s assets and life. A principal will be wise therefore to select an Attorney in Fact who is absolutely trustworthy, or as trustworthy as is humanly possible. As a means of mitigating the rather substantial risks involved, some select blood relatives or the closest of friends.

Another way to reduce risk is to select joint attorneys in fact:

(1) “AND” Attorneys in fact. The principal appoints “A” and “B” as joint Attorneys in fact. The use of the conjunctive “AND” means that both A and B must approve any decision made on the Principal’s behalf; and

(2) “OR” Attorneys in fact. The principal appoints “C” or “D” as joint Attorneys in fact. Use of the disjunctive “OR” requires that only one – C or D – approves any given decision.

Best practices and contingency planning suggest that designating successor Attorneys in fact is prudent, in the event the first – or second – is unable or unwilling to serve.

Attorneys in fact are entitled by statute to compensation, pursuant to N.J. S.A. 46:2B-8.12. A principal will be wise to set forth the mechanism for calculating and paying this compensation in the POA itself. If no mechanism is stated, it will be up to the Courts, something proper drafting should preclude.

April 23, 2012 by Rebecca Esmi

Power of attorney: powerful alternative to court-imposed surrogate decision-making

A Power of Attorney (“POA”) is a legal document whereby one person, the principal, designates another – the attorney in fact or agent — to act one his or her behalf. The POA provides proof to third parties, such as banks, of the attorney in fact’s authority to act. The principal, in order to create the POA, must have the capacity to contract; as a legal standard, this means the principal must understand the nature and effect of his or her act (See Estate of Joseph J. Zaolino, 1998 WL 34001287 (N.J. App. Div. 1998), unpublished opinion).

There are several varieties of POA. For example, the principal can either limit or expand the power delegated to the attorney in fact. Unsurprisingly, the former variety is deemed a limited POA while the latter expansive type is a general POA.

There are also general durable and springing POAs. Before giving a definition of these two POA varieties, it is important to understand that under common law, a POA became ineffective upon the incapacity of the principal. This is counter-intuitive, as one would expect that a POA is most essential at the principal’s incapacity.

Importantly, there are exceptions: the general durable and springing POAs. A general durable POA is effective despite the principal’s incapacity. As to the springing variety, a general springing POA is effective only if the principal becomes incapacitated.

In order for these POAs to survive incapacity, specific legal language must be employed. If this verbiage is omitted from the POA, the attorney in fact’s authority will not survive the principal’s incapacity.

A general durable POA should state that “this power of attorney shall not be affected by the disability of the principal” so as to survive the principal’s incapacity. The springing variety must state something along the lines of: “This power of attorney shall become effective upon the disability of the principal.” Then, it waits passively until and if the principal becomes incapacitated, only then springing into force.