By JUDD MATSUNAGA, Esq.
Have you been worried about your aging parent? Perhaps you’re pretty sure they do need help and you’ve been trying to figure out what to do next. Timing is everything. It’s not “if” they’ll need help, it’s “when” they’ll need help. If you wait for the 11th hour, you lose planning options. The earlier you act, the better. Hopefully, this article will help you avoid a crisis.
Especially if you’ll be spending time with your parent(s) during the holidays, this article should come in handy. If you are the adult child that your parents are counting on to help them as they grow older, ask your parents if they have executed a Power of Attorney (POA). Chances are, they might say, “Yeah, yeah, we did that 20-30 years ago.” Not so fast.
There is a very good chance that a bank or other third party may refuse to honor it when you need it most. At the L.A. County Bar, we have something called a “list-serve,” where estate planning attorneys will share advice or ask each other questions. One of the most common topics that I see is “What to do when a bank or other financial institution refuses to honor a valid POA.” And I’m seeing them more frequently.
According to my esteemed colleagues, although your POA might be valid under state law, many banks are taking the position that federal law pre-empts state law. “Say what?”
The USA Patriot Act (passed shortly after Sept. 11, 2001), deters and punishes terrorist attacks in the U.S. and abroad through enhanced law enforcement and strengthened money-laundering prevention. For this reason, banks believe that they have the discretion (and perhaps the duty) to exercise unprecedented levels of due diligence on any corresponding accounts that exist in money-laundering jurisdictions throughout the world.
Therefore, banks are taking the position that their action or inaction on a POA is an exercise of that discretion or fulfillment of that duty.
And it’s not just banks that are taking this “better-safe-than-sorry” approach to gathering as much information as possible. It’s financial advisors, title companies, intermediaries, broker/dealers, commodity merchants and the like. They’ll make you “jump through hoops” to verify the identity of the person with whom it is being asked to do business, as part of the federal program to deter money-laundering.
So here’s the problem: You have a valid POA drafted by your attorney. The home care agency, for example, wants an “automatic bill payment” for their services. Mom is in the hospital and being discharged in a few days. You’ve made arrangements for her care, provided you set up the auto-pay. So you walk in the POA to Mom’s bank. However, the bank says it’s too old and they won’t honor it.
So what do you do? What can you do? You can sue the bank to force them to honor the POA. It’s valid, you paid an attorney to draft it. You may win if the court finds that the third party’s refusal is unreasonable and makes the bank pay for your costs and attorney fees.
However, you may not win if the bank’s refusal is somehow authorized by state or federal law or regulation. Then the bank’s refusal is not unreasonable.
The big banks will claim that their refusal is not “unreasonable.” And the bigger the bank, the more difficult they are. It can be exceedingly frustrating for a bank to disregard a POA, especially if they are wrongfully rejecting it. Ask the bank why they’re not accepting the POA in writing (in case you have to sue). The following are some common reasons:
(1) The POA is too old. If the POA is many years old, it may be too “stale” to effectively use. The laws in the state may have changed since the POA maker originally signed the document. The document may not have the necessary language the bank needs to allow access to accounts. It’s important to update a POA periodically, so long as the POA maker has the mental capacity to establish a POA, meaning you grasp what it is and the implications of setting one up.
(2) The POA is not durable. If a POA is not durable and the maker is now incapacitated, a bank may refuse it. The “durable” part of a POA means that the document can be used even if the maker becomes incapacitated. When a person makes a durable POA, the document is intended to let their agent do the job even if the maker is no longer of sound mind. Without the durable part, the agent won’t be able to use the document after the maker loses capacity due to dementia or other medical issues.
(3) Bank requires personal appearance. The bank wants the person who signed the POA or the agent or both to appear in person. A bank may request that the POA maker and/or the agent appear in person for a request. That may not be possible due to illness, location or mobility issues for one or both of them. It is always wise to have an alternate agent listed in the POA who could step in if needed. If that’s not feasible, the bank needs to be informed why the agent can’t appear and a doctor’s note should be provided to explain the POA maker’s limitations.
(4) Bank requires additional information. If you’re being asked for additional information by the bank, it may be part of their procedures or a legal requirement. For example, if a power of attorney doesn’t take effect until the maker is incapacitated (called a “springing” power of attorney), the agent may need a doctor to certify that the POA maker is unable to handle his or her own affairs. It’s another hurdle to jump, but it does protect all involved.
(5) Bank wants it’s own POA form. Financial and other institutions often impose their own requirements with respect to their willingness to recognize and act on a durable power of attorney. “We have our own, very specific POA paperwork,” says the bank. My guess is that the bank’s form holds the bank “harmless” if the agent abuses its power, causing damage to the estate.
“Unfortunately, POA roadblocks are common. POAs are not given the due deference they deserve,” says John T. Midgett, president of the National Association of Estate Planners & Councils. (Source: AARP, “Why Did Financial Institutions Refuse to Honor Her Power of Attorney?” Sept. 21, 2023)
If you do not have a POA that the bank will honor and become too ill to manage your financial affairs, it may be necessary for a loved one to petition a court to appoint a conservator. A conservatorship is an expensive, time-consuming, and emotional process in which the court evaluates the vulnerability of an adult who may be unable to take care of his or her own personal finances, or may be subject to undue influence.
If a court proceeding is needed, you may not have the ability to choose the person who will act for you. Even if you have a spouse and/or adult children, the court could appoint someone you don’t even know, i.e. a stranger, to control your assets. If that bothers you (and it should), it is much easier, much safer, and much cheaper to have an agent in place through a POA.
Do not assume that being married means you do not need a POA. If you become incapacitated and are no longer competent because of a stroke or an accident, your spouse cannot access bank accounts in your name alone, sign contracts and other legal documents on your behalf without a POA.
To be safe, before “crisis” happens, take your POA to the bank, brokerage firm, or other financial institution with which your agent under the POA is likely to have dealings. Ask them to review it and make sure it would be honored. If there’s a genuine, valid and still-in-effect POA, there should be no reason for the bank to not accept it.
If the bank or other financial institution requires that any durable power of attorney be executed on its own form, or a more current form, the principal and the agent may want to visit the bank while everyone is healthy and doing well. You can ask that the bank put the POA “on file” and double-check that it meets the bank’s requirements for approval.
Keep in mind that a POA is a legal document. To be valid, you must be “competent,” also referred to as “of sound mind.” That means you must have the mental capacity to understand the benefits, risks and effect of signing the document. The “capacity” required to execute a POA is set by California statutes.
You might say, “But Judd, Mom was diagnosed with beginning Alzheimer’s last year!” Let’s make this perfectly clear — DIMINISHED CAPACITY IS NOT LACK OF CAPACITY! A medical diagnosis of dementia or Alzheimer’s does not mean “incapacity.” Mom or Dad can still execute a new POA that the bank will honor even with dementia. Furthermore, the only person who can legally declare someone “incapacitated” is a judge.
So who determines whether a person is “competent” when signing the form? According to California Powers of Attorney and Health Care Directives, published by CEB, the attorney representing a principal in the drafting of a DPOA for financial management typically determines the mental capacity of the client. (Source: https://saclaw.org/resource_library/determining-competency-to-sign-a-durable-power-of-attorney-2/)
Of course, you can create a DPOA without an attorney. Many people use a form they found on the Internet and never consult an attorney. In that case, no one is obliged to evaluate your capacity before you sign. That is usually fine, unless the bank wants to refuse it. Several families have requested me, as drafting attorney, to send their bank a letter stating that the principal was “competent” when they executed the POA.
In conclusion, it’s so important for everyone to have an estate planning attorney draft (or update) their documents — especially the POAs. When you’re there, ask your attorney about transferring the assets into the principal’s revocable living trust. Now you’ve eliminated all the problems with the POAs discussed above. The nominated successor trustee is authorized to step in as trustee for purposes of management and control of trust assets.
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Judd Matsunaga, Esq., is the founding partner of the Law Offices of Matsunaga & Associates, specializing in estate/Medi-Cal planning, probate, personal injury and real estate law. With offices in Torrance, Hollywood, Sherman Oaks, Pasadena and Fountain Valley, he can be reached at (800) 411-0546. Opinions expressed in this column are not necessarily those of The Rafu Shimpo.