Durable Powers of Attorney (“POAs”) are an important estate planning tool, useful in many situations. For example, a senior client may need help from a loved one on an ongoing basis to pay bills and manage finances. They are also crucial in those “acute” situations where there is a crisis of some sort and there is a need for a family member or other third party to take care of certain things in a hurry, where the ability to sign on behalf of an ill or unavailable family member is critical.
A POA is a set of instructions. Specifically, it is an instrument where the “principal,” that is the person signing the POA document, grants certain powers and authorities to someone else, “the agent.” The POA is intended to be read and understood not only by the agent to whom authority has been given, but also by any third party called upon to honor the agent’s authority and to deal with the agent on behalf of the principal. If a third party for whatever reason refuses to honor a POA, then that is a problem. We hear all too often that banks seem eager to seek out reasons not to honor a perfectly valid POA.
A 2009 case in Florida presents an example of where a bank customer managed to litigate and win against a big bank that refused to honor a power of attorney. A news article reporting on the case can be reviewed at http://www.tcpalm.com/news/stuart-man-takes-on-bank-of-america-and-wins. In that case, Charles H. Smith, Jr. was the agent under the power of attorney of his father, Charles H. Smith, Sr. Smith, Sr. was living in a retirement community and he had set up a joint bank account at Bank of America together with a female friend he knew from living in the same community. Smith, Jr. began scrutinizing his father’s financial statements and grew concerned when he discovered significant amounts of funds were missing.
In September 2007, Smith, Jr. walked into a Stuart, Florida branch and brought his concerns to the attention of branch manager. He also presented the bank with the POA for him to act on behalf of his father and asked to withdraw his father’s funds from the joint account. The manager maintained that the policies of that bank required the signatures of all account holders in order to confirm any account transfers. The bank asserted that no funds could be withdrawn without the consent of the father’s friend. Despite the manager speaking to the father and being convinced that the father was competent, and also understanding that the father wanted his son to act on his behalf, the manager still refused to honor the request. Shortly thereafter the friend of the father moved all assets out of the account and then three weeks later the father passed away. At that point, the father’s funds were lost.
When Smith, Jr. later brought a legal action against Bank of America, a jury found that the bank had acted unreasonably in refusing to honor the POA and awarded Smith, Jr. $64, 142 in damages. Unfortunately, this outcome took years, and at considerable cost. It must be noted that in bringing his claim, Smith, Jr. was able to utilize a Florida law that imposes significant penalties on financial institutions that refuse to honor reasonable requests from agents named in properly executed POAs. Unfortunately, few other states have such laws. Connecticut does not have such a law.
We find one common excuse used by banks for refusing to honor a POA is to claim that the POA is “stale,” or too old. Policies may vary from bank to bank but generally a document more than a year or two old is likely to be challenged. Our simple strategy to overcome that particular type of a challenge is to prepare and execute a new POA for each of our LifeBridgeTM clients as part of their annual update. Then if and when that POA needs to be presented to a bank, the POA would be no more than one year old.