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.
Check on your state’s laws. Some states require financial institutions to accept a power of attorney unless they report suspected abuse to authorities or are aware that someone else made such a report. Also, state law may authorize penalties against banks that put up barriers. Financial institutions may have to pay the fees incurred by a family that is forced to hire an attorney to enforce the power of attorney.
Having an experiences estate planning attorney create your powers of attorney will be beneficial in these situations.
Reference: Wall Street Journal (June 12, 2016) “When the Power of Attorney Lacks Power”