30 Sep Do we need a power of attorney when we have joint accounts?

Q.  My wife and I have a joint checking account. Our credit cards are also in both of our names, as are our brokerage account. We each have a will with each other as the sole beneficiary. Is a power of attorney necessary for our accounts and do you need a lawyer to do this?
— Married

A. We’re glad you’re asking. It’s essential to get your estate planning ducks in a row before you need to use them.

A power of attorney is a legal document in which you appoint someone, called the agent or attorney-in-fact, to engage in financial transactions on behalf of the person who creates the power of attorney. The creator is called the principal, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

She said the power of attorney document describes what the agent can and cannot do.

A general durable power of attorney is effective upon signing. A springing power of attorney comes into effect when a condition for its activation is triggered, she said.

“For example, a springing power of attorney might state that the power of attorney is effective if a physician certifies that the principal is incapacitated,” she said.

All powers of attorney are extinguished upon the death of the principal, Whitenack said.

“Under the New Jersey’s Multiple-Party Deposit Account Act, a joint account belongs, during the lifetime of all parties, to the parties in proportion to the amounts each joint account holder contributed,” she said. “In the absence of proof of such contributions, the account belongs in equal amounts to all parties who have the right to withdraw funds from that account.”

When one joint bank account holder dies, Whitenack said, there is a rebuttable presumption that all of the assets in the account belong to the surviving account holder.

“If spouses own a joint bank account then either party can withdraw funds from the account,” she said. “A power of attorney should not be necessary to access the funds in the joint account unless both account holders are unable to do so themselves.”

An example would be if both spouses may become incapacitated or leave the country for a period of time, she said.

When a bank account is owned by one person, a power of attorney is imperative so that the assets can be used for the benefit of the account holder if he or she becomes incapacitated, Whitenack said.

“Certain accounts, such as 401(k)s and IRAs, can have only one account holder so powers of attorney are important to permit an agent to access those accounts in the event of the principal’s incapacity or unavailability,” she said.

As for whether or not you need a lawyer, you don’t need to hire a lawyer to draft a power of attorney. Power of attorney forms can be purchased and downloaded online. In some cases, such powers of attorney may be sufficient.

But it’s not always that simple.

“In many cases, the power of attorney language downloaded from the internet may not be adequate and the principal may have been much better off retaining an attorney to draft the document,” she said.

For example, under New Jersey law, an agent under a power of attorney may not make gifts of the principal’s assets unless the power of attorney document contains express provision authorizing such gifts, Whitenack said.

“For individuals who may want such gifts made for Medicaid planning purposes, the absence of a gifting provision may impede the transfer of assets, necessitating a more expensive guardianship proceeding to accomplish such planning,” she said.

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This story was originally published on Sept. 30, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.