Banks and Financial Durable Powers of Attorney

Banks and Financial Durable Powers of Attorney

By Michael G. Kelly, Arizona Mobile Attorneys

We are contacted by persons who need assistance in regard to a bank that refuses to honor a validly executed Financial Durable Power of Attorney. This often occurs because the person who executing the power executed a “springing” power of attorney long before it was brought to a bank or other third party to add the agent under the power as a signor/authorizer on the account.

A “springing” durable power of attorney is a power that does not come into effect until the principal (the person providing the power) becomes incapacitated (unable to make informed decisions regarding their financial affairs). This can occur years after the Power of Attorney is executed by the person when they have capacity to execute it, causing the bank to view the power as stale and therefore questionable as to its validity. Though such a conclusion is in error, it is nevertheless a practical reality when dealing with some banks. Obviously this is a serious problem when an agent (often an adult child) is attempting to manage their principal’s (the parent’s) financial affairs because they are no longer able to. It is important to take steps to prevent this situation from occurring.

One approach that is often used is to name the agent as an actual owner on a joint account. This is a mistake because it invites fraud, in that the new co-owner is free to make unlimited withdrawals of money from the account that is not really their own. In addition if the new co-owner is ever sued for anything, the money that is in the account is now fair game in the law suit. Arizona Mobile Attorneys does not recommend this approach.

Another approach for a springing power is for the principal to certify the Power of Attorney by affidavit each year, effectively making it current. This may be somewhat effective, however, there is no guarantee a bank would accept it and the principal would be burdened with exercising the diligence to assure renewal each year.  Alternatively, the Power itself could be redrafted and executed periodically but that involves even greater burden and in practice is unlikely to occur unless relationships have changed.

A final approach, and one which Arizona Mobile Attorneys recommends, is to execute an IMMEDIATE Durable Financial Power of Attorney. An immediate power comes into effect immediately upon execution as opposed to being delayed until incapacity occurs (springing power). By doing this the power can be immediately presented to a bank in order to have the agent added as a signor/authorizer on the account.  This avoids staleness of the document and the burdens of annual renewal. It is extremely important that the agent is a highly trusted person who is beyond reproach since they are being given immediate powers to act on the principal’s behalf.  The agent must tacitly understand that they are acting under the direction and knowledge of the principal at all times, while the principal has capacity. The document should have safeguards in place to assure that the agent would be held legally accountable for any financial abuse.  This approach is vastly superior to adding someone on to an account as an owner with no legal safeguards.

© Michael G. Kelly, Arizona Mobile Attorneys