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Wednesday, June 25, 2014

The Durable General Power of Attorney: Friend or Frenemy?

Many people may not know that banks and other financial institutions in many
states can refuse to accept powers of attorney that were executed more than
three to five years prior to the date they are presented for use. CSAs should
be aware of this issue in order to protect their clients.

Understanding what a general power of attorney is and does can be complicated. In
Colorado, a general power of attorney, commonly known as a financial power of attorney
or power of attorney for property, is a document granting authority to a named agent, known as an Attorney-in-Fact, to act on behalf of the person creating the power of attorney. The person creating the power of attorney is the “Principal.”

A general power of attorney is valid until the Principal is declared incapacitated, unless the general power of attorney is durable. In contrast to the general power of attorney, a durable general power of attorney, which designates the same authority as a general power of attorney, will remain valid upon the Principal’s subsequent incapacity. That is, if a Principal is diagnosed with dementia, the Attorney-in-Fact may still act on the Principal’s behalf with a durable general power of attorney, whereas the Attorney-in-Fact’s authority would cease with only a general power of attorney. 

By executing this document, the Principal designates authority to the Attorney-in-Fact. Such authority commonly includes the power to manage and access bank accounts and investment accounts, access safe deposit boxes, as well as to buy or sell property, make gifts, and to financially care for and support the Principal and any dependents. This document is useful in a variety of situations, such as when the Principal is out of state or out of the country, is bedridden or hospitalized, is incapacitated, or is simply unavailable to attend to the matter at issue. When one of these situations arises, the Attorney-in-Fact can act for the Principal to resolve the matter without the Principal’s involvement. This article will specifically address issues concerning incapacity and the use of a power of attorney at banks and financial institutions.

A Case Study: Amanda and Tyler Smith

Amanda, age sixty-eight, and Tyler, age seventy-two, are a financially responsible  married couple living in Colorado. In addition to their joint accounts, each of them maintains individual checking and savings accounts, as well as retirement accounts. In 2006, Amanda and Tyler went to their estate planning attorney and each executed a Last Will and Testament and a Durable General Power of Attorney, appointing each other as their designated Attorney-in-Fact.

In February 2013, Tyler received a diagnosis that he was in the late stages of dementia. In order to pay for everyday living expenses and in-home care for Tyler, Amanda needs to access the funds in Tyler’s individual accounts. Since Amanda is named as Tyler’s power of attorney, she brought the document to Tyler’s bank and requested a withdrawal of the account funds.

Why did this happen, and how could it have been avoided?

In our case study, Amanda and Tyler executed a durable general power of attorney. Since the power of attorney that Tyler executed is durable, the document remains valid in spite of his dementia and authorizes Amanda to continue to act on his behalf. Now, how is it that the bank refused to accept the durable general power of attorney that was properly executed, had not been revoked, and clearly named Amanda as the Attorney-in-Fact? 

Although a power of attorney may be plainly valid, local and national banks and financial institutions have refused to accept powers of attorney that were executed more than three to five years prior to the date they are presented for use. How can they refuse to accept a valid legal document? This is a question that continues to be argued by estate planning attorneys and the legal departments of financial institutions. Since this issue has occurred with national companies, it is possible that it could, or does, occur in your state. Therefore, it is important for estate and financial planners in states outside Colorado to understand their state laws and how to best protect their clients. In Colorado, the law specifically states that a person (in this case the financial representatives) may not require an additional or different form of power of attorney for authority granted in the power of attorney presented. By refusing to acknowledge valid powers of attorney, these banks and financial institutions are violating statutory law. 

What should be done now?

While a mentally competent person may execute a document affirming or re-affirming an older, existing power of attorney or sign the new power of attorney provided by the financial institution, those dealing with Alzheimer’s, dementia, or similar diagnoses are unable to affirm or sign a power of attorney. Only a person who is considered mentally competent may execute a general power of attorney or a durable general power of attorney. If the individual is competent and signs the institution’s power of attorney, this may entirely invalidate any previously executed powers of attorney and leave the Attorney-in-Fact powerless to act on behalf of the Principal. In light of these obstacles, if a bank, financial institution, or other company continues to refuse to honor a valid durable general power of attorney or a general power of attorney, it is highly likely that judicial recourse will be necessary. 

First, the Attorney-in-Fact may pursue a court order mandating acceptance of the power of attorney. Unfortunately, while this can provide relief and enforce compliance, the court process can be quite timely, extending for several weeks, months, or potentially even in excess of a year! By that time, Amanda and Tyler could become impoverished and unable to meet their daily needs. The Colorado statutes provide that a company will be liable for the Attorney-in-Fact’s legal fees and costs if the court makes an order in the Attorney-in-Fact’s favor. However, such payment is not typically recouped until the end of the court process, and there is the possibility of further delay in the collections process.

Alternatively, the Attorney-in-Fact may petition a court to appoint a conservator for the Principal. A conservator is appointed by the court to administer a person’s property. In our case, Amanda would be required to petition the court to be appointed as Tyler’s conservator. Once Amanda completes the requisite background checks and completes the court documents, a hearing will be held to determine whether a conservator is necessary and whether Amanda is entitled to serve as conservator. Then, once she is appointed,
she will be required to file annual reports with the court regarding her actions and Tyler’s financial state. While this alternative is effective, an additional time commitment is imposed on the conservator due to the court’s continuous oversight.

How can this be avoided?

To avoid a legal battle, Amanda and Tyler should have considered a revocable living trust. A revocable living trust is a trust created by the Grantor during the Grantor’s lifetime. The trustee of the trust is responsible for managing the trust assets. The Grantor may fund the trust with all of the Grantor’s property and assets, or the Grantor can choose only certain assets. Typically, the Grantor is the initial trustee of the trust, and a successor trustee(s) is named to serve in the event of the Grantor’s incapacity. The successor trustee(s) may begin to manage the trust assets immediately upon the Grantor’s incapacity, without being appointed by the court (assuming terms to the contrary are not drafted in the trust agreement). A power of attorney would only be necessary for assets that are not transferred to the trust, if any.

Amanda and Tyler could have executed revocable living trusts nominating each other as co-trustee and/or successor trustee of each trust. Upon Tyler’s incapacity, Amanda would then continue to serve as trustee and manage the assets in Tyler’s trust without the need for court intervention or a power of attorney, and thus significantly reducing the risk that Amanda would be denied access to Tyler’s accounts. 

A durable general power of attorney is a useful document for managing the Principal’s property and affairs, but in certain situations it may not be sufficient to avoid costly and time-consuming complications. Attorneys continue to assert Colorado’s statutory authority when these issues arise, but unfortunately these matters are not always resolved without court intervention. Until we begin to see some reform within the legal departments of such financial institutions, estate planning attorneys should be aware of this issue in order to advise and protect their older clients. •CSA

The author, Kirsten N. Jacobs, is a licensed attorney in the state of Colorado and practices estate planning, estate and trust administration, and elder law at The Law Center P.C. in Denver. She is an active member of the Colorado Bar Association and its Trust and Estate Section. She graduated from Syracuse University College of Law where she concentrated her studies in estate planning and gerontology, and served as an editor of the Journal of International Law and Commerce. She can be contacted

The Durable General Power of Attorney: Friend or Frenemy? was published in the Spring 2014 edition of the CSA Journal.

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