A general durable power of attorney is a legal document authorizing someone (called your Agent or Attorney-in-Fact) to manage your financial affairs on your behalf. This individual can perform any actions that you could do for yourself, such as signing checks, buying or selling real estate, depositing or withdrawing funds, even run a business! The bonus of a properly drafted general durable power of attorney as opposed to a regular power of attorney is that the authorization to act continues even upon incapacity. That way, the person to whom you have granted power of attorney can maintain your financial activity (among other important matters that need to be taken care of expediently) until you are well enough to do so for yourself again. With a general durable power of attorney, all of this is possible without any involvement from the court.
Without this important document, you run the risk of facing far more difficulties than you would otherwise. If there is no general durable power of attorney and you become incompetent or incapacitated, no one will have the authority to act on your behalf. In such cases, your loved ones will have to petition the court for the establishment of a guardianship. Guardianships are not only expensive, but are time consuming and can cause a strain on your family. Furthermore, if there are assets in your estate, a guardian will be required to post a bond in order to protect himself or herself from liability. Guardians must also present an accounting every year with the court to show how and where the assets were used. But the process does not necessarily stop there. Once you have a guardian appointed to act in your stead, the guardian may need to apply for court relief again if he or she thinks that you might need to engage in Medicaid planning to plan for you’re the payment of long term care.
Additionally, in New Jersey, after a guardian is appointed, he or she becomes your fiduciary, and must comply with the Prudent Investor Rule when it comes to investing your assets. Compliance with the Prudent Investor Rule requires the guardian to show proof of the following:
(1)diversification of assets; (2) avoidance of unnecessary costs; (3) duty of impartiality to various beneficiaries; (4) delegation, where necessary; and (5) preservation of assets.
All of the above difficulties, however, can be avoided if a General Durable Power of Attorney has been established in advance, before you become incompetent. This will avoid the long, drawn out court process and provide your loved ones with a simpler, more cost-effective way of managing your assets.