Few people are aware of the extreme financial difficulties that can occur when an aging person’s power of attorney or living trust is not honored by a financial institution. More and more people are learning about this, though, and the learning often takes place in the school of hard knocks. I should not complain. Quite a few of our clients have come to us because of our reputation for working through these difficulties successfully.
The affluent and wealthy are not exempt. They are less likely to have omitted important documents such as powers of attorney, omissions that would lead to the courthouse for guardianship when incapacitation becomes an issue. But even the affluent and wealthy sometimes have inadequate or outdated powers of attorney and trusts. Powers of attorney, in particular, “get no respect” by most people. They tend to be considered perfunctory “forms,” if they are thought about at all. This perception changes suddenly when the principal loses mental capacity and financial institutions refuse to honor the document or deal with the agent.
Reflecting on 2014, I think it was a year of “bad” powers of attorney and trusts that financial institutions balked at honoring. Although sometimes attributable to attorney draftsmanship, the problems usually related to the passage of time since the signing of the documents. The fact is that financial institutions are becoming increasingly picky about honoring powers of attorney, and even some trusts. It seems that their “cya” approach is leading many financial institutions to apply the most restrictive laws they can find in any state in the country rather than the laws of the local state.
An example is a new power of attorney law that became effective in Pennsylvania during 2014. The Pennsylvania law added rules there that we saw financial institutions in North Carolina apply during 2014. In addition to a number of other rules, the Pennsylvania law identifies eight powers that the agent named in the power of attorney will not be allowed to exercise unless they are explicitly granted in the document. A general reference or an implied granting of them will not be sufficient. Some of the eight powers that we saw disallowed by financial institutions in North Carolina because they were not explicitly granted included: (1) the authority to create, amend, revoke or terminate a living trust on behalf of the principal; (2) the authority to delegate authority to others that was granted by the principal to the agent; and (3) the authority to exercise fiduciary powers on behalf of the principal.
Reminder: Don’t take powers of attorney for granted. That includes your own, as well as those of others that name you as the agent. They might seem like mere “forms” now, but they will take on huge significance if a financial institution refuses to honor them after incapacitation already has occurred.