Nobody wants to be stuck in a situation in which they are incapacitated and unable to manage their financial affairs. That is why you must execute a power of attorney. There are many considerations when drafting your power of attorney, one being when you want it to go into effect. In other words, whether you want a “springing” power of attorney or a “durable” power of attorney.
A power of attorney is a critical component of any estate plan. A power of attorney is a legal document granting a person (the agent) the authority to make important decisions on behalf of another (the principal). These duties may include handling finances, managing property and vehicles, filing taxes, investing, paying bills, operating your business, collecting social security and other income, or handling insurance. For the reasons we explain below, you should work with an estate planning attorney to develop your custom power of attorney document depending on your individual needs or circumstances.
A power of attorney is a part of a complete estate plan because it addresses what wills do not—that is, what should happen to your property when you are still alive but unable to make financial and legal decisions due to incapacity.
A similar type of document exists for medical decisions, known as a medical power of attorney or a healthcare proxy. We discuss what you need to know about this other important estate planning document in another article.
Springing Power of Attorney
There are a number of ways for a power of attorney to go into effect. In general, a power of attorney will go into effect immediately upon signing. And, by default, a power of attorney will expire upon the incapacity of the principal.
A springing power of attorney, however, does the opposite. It does not go into effect immediately upon signing, but rather it goes into effect only upon the occurrence of a specific event, typically upon the incapacity of the principal. This can help some people feel more protected because this power of attorney is only used when it’s needed.
Note that a springing power of attorney can be activated upon a different event, such as a designated date, so in this situation you will want to consider whether you want your power of attorney to continue if you become incapacitated.
Important Considerations for a Springing Power of Attorney
Because the concept of incapacity can be defined in a number of ways, you should consider how you would like incapacity to be defined. You can work with your attorney to craft this definition and include it with your estate planning documents. Having a clear definition of incapacitation in your custom power of attorney can avoid unnecessary confusion and possible disputes about when the agent can act.
Another issue is that there can be a delay between the moment you become incapacitated and when the agent can act. With a springing power of attorney, the agent will need to obtain a letter from your doctor declaring you incompetent. Such delays can be vital since your bills will still be piling up and risk becoming overdue. Conversely, a durable power of attorney does not require a doctor’s letter to remain in effect, and thus can avoid delays.
Further, you will want to execute a HIPAA release alongside your springing power of attorney to make sure that your agent can obtain proof of incapacity as soon as possible. Sometimes this release is in the power of attorney but it is a good idea to do a separate one, which is what we do for our clients.
Finally, you will want to consider who you want to act as your agent. This person can be given broad power and discretion over your assets while you are incapacitated, so you want to make sure that they are trustworthy. In some states, including New York, you can appoint a monitor who can request copies of your financial records from your agent to ensure that you are not being exploited, although this could cause issues by inviting more people into the already complicated situation.
You may be tempted to use a pre-written power of attorney that you find online. While this may (or may not) be better than nothing, the personalization and customization of working with an experienced New York and New Jersey estate planning attorney to tailor this document to your needs is the best approach. Specifically, the attorney should ensure your agent does not have more power than he/she needs and the attorney should craft language to help you prevent any unnecessary delays when time is of the essence.
If you are ready to start planning your springing power of attorney, we’re ready to help. Please contact The Chamberlain Law Firm by calling us at (201) 273-9763 to begin working on your custom power of attorney.
This article is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a lawyer about the specifics of your case, contact The Chamberlain Law Firm at (201) 273-9763 to schedule a consultation.