Could a Bank Refuse A Client's Power of Attorney?

Jackie Bedard
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One of the most important estate planning documents that you should have is a durable power of attorney designating who they authorize to manage their 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, so you and your adult children may need to take additional steps to avoid possible pitfalls. 

The Wall Street Journal recently published an excellent article on the difficulty some adult children are facing when trying to work with their parents' banks or brokerage firms.

Different Versions Exist

Powers of attorney come in several forms. Some cover specific situations; for example, a parent may authorize an adult child to act on their behalf when 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. Separate health care power of attorney documents address medical decisions.

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 client's losses. They've grown wary of accepting powers of attorney, and their refusal to do so has resulted in a number of states creating laws requiring them to do so under certain circumstances.

Imagine if a client suffered a stroke and the bank holding her assets balked at recognizing the power of attorney document she created to authorize her son to manage her financial affairs. This can be incredibly frustrating for the family, and her son may have little recourse but to take legal action against the bank or file with a court to become his parent's legal guardian - an expensive endeavor that is often open to public record.

Look for 'Springing' Provision

There are steps clients and their adult children can take to keep matters from getting to that point. 

The first step is to determine what kind of power of attorney document was created. While a standard durable power of attorney gives the named individual authority to act on a client's behalf in financial matters immediately after the document is signed, a so-called "springing" power of attorney only goes into effect if the client becomes incapacitated.

Many clients, while still in good health, initially like the idea of a springing provision be included because it feels like they are giving up less control. However, it can create significant complications for adult children seeking to legitimately manage an elderly parent's affairs. 

In the case of using a springing provision, many financial institutions require a physician's signed statement certifying that the client is incapacitated. The federal HIPAA medical privacy laws make it difficult for a client's children to talk with their doctor, and some physicians will refuse to sign a statement if they think the patient might recover. 
Due to the many complications that we have seen arise with springing provisions, we generally discourage the use of springing provisions.

Think It Through Now

It is critical that you think ahead before a time of crisis and learn what procedures your banks and brokerage firms require. Some banks may ask you to sign separate powers of attorney documents drafted by the institution's own lawyers so it'll be easier for them to administer a standardized form, the WSJ said. Some of these forms require the signer waive his or her right to sue the financial institution.

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

What should your adult child do if he or she is 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, he or she may need to take steps to reassure the bank that the document is legitimate. This might include verifying 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, you need to work with an experienced estate planning attorney to create documents that will be binding and enforceable. To read more about common estate planning issues, check out our free guide, Estate Planning Pitfalls: The 12 Most Common Threats to Your Estate & Your Family's Future. If you have questions about this matter, please reach out to us for a consultation. We can be reached at 919-443-3035 or through our https://www.carolinafep.com/contact.cfmcontact form.