05 Jul How do I know what kind of power of attorney I need?

Q. What is the difference between a power of attorney and a durable power of attorney, and how do I know which one I need?
— Planning

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A power of attorney is a term for an instrument that allows a principal — that is, the person for whom the power of attorney is drafted — to permit an agent, known as an “attorney-in-fact” to act on his or her behalf with respect to his or her financial and business affairs, said Tom Szieber, a trusts and estates attorney at Avelino Law in Morristown.

Many people execute powers of attorney to plan for incapacity, he said.

“To do so, the power of attorney would either be effective upon execution or upon the happening of a defined trigger event, such as the principal’s incapacity — the latter version is generally known as a “springing” power of attorney,” he said. “Each type can be `durable,’ which means it remains effective indefinitely unless and until it is revoked.”

If you want your power of attorney to be effective upon incapacity but you do not wish for your attorney-in-fact to be able to act while you are able to act for yourself, a springing power of attorney is preferable, Szieber said. However, he said, it can be administratively burdensome to get institutions to honor springing powers of attorney because they will often require proof of incapacity.

“If you are appointing an attorney-in-fact who you trust, then it is often more practical to have a power of attorney which is effective upon execution,” he said. “In either case, when planning for incapacity, it is generally best to make the power of attorney durable.”

Szieber notes that another type of power of attorney is a “limited” power of attorney. This permits the attorney-in-fact to act only in select situations such as to sign documents at a real estate closing.

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This story was originally published on July 5, 2023.

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.