Most people have heard of a power of attorney, but many are confused about how they work. One question that is often asked by clients is whether an agent under a power of attorney is permitted to make gifts of their assets. The answer? It depends. The follow-up question: Is this a power you want your agent to have? That also depends.
BACKGROUND
What is a power of attorney?
A power of attorney is a contract in which you (called the “grantor” or “principal”) delegate to another person (called your “agent”) the power and right to act on your behalf in the management of your financial affairs while you are living. Your agent is given the responsibility of handling your legal and financial matters, which is important in the event of an emergency that prevents you from taking the necessary actions.
Are the different types of powers of attorney?
Yes. A “durable” power of attorney becomes effective immediately upon being signed by the principal, and is not affected by the subsequent disability or incapacity of the principal. In contrast, a “springing” power of attorney becomes effective only after a medical determination has been made that the principal is no longer capable of managing his or her affairs. A “general” power of attorney is one which typically will give the agent the right to handle a broad range of financial or legal matters. A “special” or “limited” power of attorney is one that is limited for a specific act, such as selling a house pursuant to a specific contract.
Does a power of attorney last forever?
A power of attorney terminates when it is revoked by the principal, upon the death of the principal, or when it expires according to its own terms.
Why should I consider executing a power of attorney?
A key step to plan for disability is a power of attorney. In the event you are unable to do so, someone will often have to sign checks, pay bills, transfer funds, deal with the Internal Revenue Service and handle other legal and financial matters. No one (generally not even a spouse) has the authority to do this unless you give it to them. The correct legal means to give this authority is to sign a power of attorney that names a person as your agent and gives the agent the authority to take charge of certain financial and other legal matters when you cannot do so on your own. Otherwise, in the event that you later become incapacitated, it might become necessary for your loved ones to initiate a guardianship action so that they have the legal authority to manage your financial affairs.
GIFTING
Is my agent permitted to make gifts of my assets?
In New Jersey, a power of attorney does not allow “gratuitous transfers of property” (gifts) to the agent or others, except to the extent that the power of attorney document “expressly and specifically so authorizes.”
Many clients are surprised to learn that wording often found in standard “form” power of attorney documents, to the effect that “my agent is authorized to generally perform all acts which the principal could perform,” does not authorize the agent to make gifts.
Do I want to give my agent the power to make gifts?
Maybe. According to New Jersey statute, an agent has a fiduciary duty to the principal, to act in accordance with powers the agent is given under the power of attorney document, and solely for the benefit of the principal. Even if you give your agent the power to make gifts, the agent has a fiduciary duty to act on your behalf, and make gifts that you would make yourself, if you were able to. And making gifts is often a critical power for an agent to have as part of a long-term care planning.
However, giving someone else the right to handle your financial affairs is a serious undertaking. Whether or not you decide to allow your agent to make gifts, you should only appoint someone you trust to act on your behalf.
For additional information concerning elder law services, visit: https://vanarellilaw.com/legal-services/ or call 908-232-7400 to schedule a consultation or click here to contact us online. As always, we look forward to hearing from you.