“If a financial institution won’t accept the document, don’t take no for an answer.”
In some circumstances, no legal document is more critical than a power of attorney, and it’s one that is full of potential pitfalls.
This form gives a designated person the authority to act on another’s behalf when making financial decisions. It is commonly employed by adult children whose aging parents can no longer act on their own. However, financial institutions frequently make it difficult to exercise that power. The Wall Street Journal article, “When the Power of Attorney Lacks Power,” lists some steps to avoid potential problems.
The most basic powers of attorney cover specific situations. Adult children may want a broader document, which is called a durable power of attorney. This allows them to take over a parent’s finances at any point, giving them the ability to help in the event the parent is no longer able to make important decisions independently. A health care power of attorney covers medical decisions.
Because the power of attorney can be abused, banks are concerned about liability for their customers’ losses and have become wary of accepting powers of attorney. As a result, a number of states have enacted laws requiring them to do so under certain circumstances.
If a parent has a power of attorney, the first step is to determine what kind of power it is. A standard durable power of attorney gives the child the authority to act on the parent’s behalf immediately after the document is signed, but a springing power of attorney doesn’t generally give the child that authority until the parent becomes incapacitated. While parents may prefer the springing POA, it can cause issues for adult children. To use a springing power of attorney, the form may require an adult child to obtain a statement from at least one physician that certifies that the parent is incapacitated, although medical privacy laws can make this hard to do.
Families can frequently avoid problems if parents introduce an adult child with a power of attorney to managers at their bank or financial firm prior to a time of crisis. Some financial institutions ask account owners to sign separate powers of attorney drafted by the firm’s own lawyers, making it simpler for them to administer a standardized form. But that form may require a person to waive his or her right to sue the firm, so read the fine print.
If rebuffed by a financial institution when trying to use a power of attorney on behalf of a parent who is unable to get involved, ask to speak to a supervisor or try another branch.
Some financial institutions may ask you to take actions to assure them that your power of attorney is legitimate—such as to verify the identity of the grantor by securing a so-called medallion signature guarantee from a bank with his or her signature on file. If an adult child tries to use a power of attorney without a parent being present, the bank may ask for a notarized affidavit stating that the document is valid.
A comprehensive power of attorney is like a traditional power of attorney on steroids. At Idaho Estate Planning we refer to it as a Supercharged Power of Attorney. It has the power to avoid Guardianship or Conservatorship, prevent questions about the principal's intent, prevent delays in asset protection planning, protect the agent from claims of financial abuse and can even allow an agent to perform planning and transactions to make the principal eligible for public benefits.
Drafting and executing power of attorney documents is an individualized process that varies depending on the circumstances. So it's never a good idea to use a boilerplate form from the Internet that doesn't reflect the individual's needs and circumstances.
A properly drawn and executed power of attorney provides individuals peace of mind and assurance that their affairs in the future will be addressed appropriately.
For more information on this and other elder law and estate planning subjects, contact Idaho Estate Planning and schedule a consultation. Remember, good planning is no accident.