Bank Refuse Power of Attorney

Could a Bank Refuse Your Power of Attorney?

Practical steps and advance planning can help reduce the likelihood that a bank or other institution will reject your general power of attorney.

One of the most important estate planning documents you should have is a durable power of attorney designating who you authorize to manage your financial affairs. This document is most often used by adult children whose elderly parents can no longer manage on their own.

However, some banks make it difficult to exercise that power; consequently, you (the “principal”) and your adult children (or other “agent” or “attorney-in-fact” to whom you have given power of attorney) may need to take additional steps to avoid possible pitfalls.

Powers of attorney come in several forms. Some cover specific situations – for example, a parent may authorize someone to act on their behalf in selling the family home.

The most frequently used version, the durable power of attorney, is sought by adult children to enable them to manage an elderly parent’s finances, giving them the legal ability to help when the parent is no longer capable of managing such matters. (Such a document is different from a health care power of attorney that addresses medical decisions.)

RESISTANCE BY BANKS

Because the durable financial power of attorney is sometimes abused, either by relatives seeking to benefit themselves or by criminals who forge them to steal from the elderly, banks seek to avoid being held liable for a customer’s losses. They have grown wary of accepting powers of attorney, and their refusal to do so has prompted some states (but not Arizona) to pass laws requiring them to do so under certain circumstances.

Imagine if you became incapacitated and the bank holding your assets balked at recognizing the power of attorney document you created to authorize your son or daughter to manage your financial affairs. Your child may have little recourse but to take legal action against the bank or file with a court to become your legal guardian — an expensive endeavor that can make public your private affairs.

ALTERNATIVE

Many states (but, again, not Arizona) have passed laws allowing for the creation of a Statutory Short Form Power of Attorney (SSFPOA) to address a financial institution’s angst and refusal to honor powers of attorney. It has a prescribed format that may not be altered, thereby providing uniformity and consistency among users and those financial institutions asked to recognize them.

If the SSFPOA is valid on its face, then the bank must accept it. A properly executed SSFPOA is rarely referred to the bank’s legal department for an opinion. Using the SSFPOA increases the likelihood that your financial institutions will accept the document and allow your designated power of attorney to carry out his or her duties.

“SPRINGING” PROVISIONS

While a standard durable power of attorney gives your agent the authority to act on your behalf in financial matters immediately after the document is signed, a “springing” power of attorney goes into effect only if you become incapacitated.

A springing provision is popular with individuals who create the durable power of attorney while they are still in good health, but it can aggravate the issue of bank resistance and open up new complications: First, many financial institutions require a physician’s signed statement certifying that you are incapacitated; second, medical privacy laws make it difficult for your child to talk with your doctor; and, third, some physicians will refuse to affirm that you are incapacitated if they think you might recover.

PLAN IN ADVANCE

It is critical that you think ahead before a time of crisis and learn what procedures your bank and brokerage firm require. In some cases, there is a direct relationship between the “age” of the power of attorney (i.e., how long ago it was signed) and an institution’s reluctance to accept it. As a rule of thumb, we recommend that powers of attorney be renewed roughly every five years.

Some banks may ask you to sign separate power of attorney documents drafted by their lawyers, to make it easier for them to administer a standardized form; some of those forms require that you waive your right to sue the financial institution.

If a bank or brokerage firm says it would reject your existing durable power of attorney, ask why and consider making modifications. Some institutions require language empowering the agent to engage in specific actions, such as trading options, designating beneficiaries, and using a margin account.

What should your adult child do if they are rejected by a bank when trying to use a power of attorney on your behalf? Beyond asking to speak with a supervisor or visiting another branch, your designated agent may need to take steps to reassure the bank that the document is legitimate. This might include verifying their identity by obtaining a “medallion signature guarantee” from another bank with his or her signature on file, or a notarized affidavit stating that the power of attorney document is valid.

When it comes to a power of attorney, it’s important that you work with an experienced estate planning attorney to create documents that will be binding and enforceable.

Adapted from the Daily Plan-It newsletter

Share by: