When it comes to planning for future incapacity, a properly executed Power of Attorney (POA) is an essential legal instrument. It allows designated agents to act on the principal’s behalf, ensuring that decisions about finances and healthcare can be made when the principal is no longer capable of doing so. However, issues often arise not because of the principal’s actions, but when agents attempt to exercise the powers granted to them under the POA. This can be especially challenging when financial institutions, despite having liability protections, are risk averse regarding the acceptance of these documents.
Understanding POA Protections for Banks
Under California law—specifically California Probate Code Sections 4123 and 4124—a properly executed POA is legally binding. These provisions are designed to protect both the principal and financial institutions that rely on a valid POA. Banks acting in good faith on such documents benefit from:
- Legal Enforceability: A POA that meets statutory requirements is valid and must be honored.
- Liability Protections: Financial institutions that act on a properly executed POA are shielded from liability when they accept the document in good faith.
Despite these protections, many banks remain risk averse. Even when the principal’s rights and intentions are clear, banks may hesitate because the actual challenge lies in enabling agents to act on behalf of someone who is incapacitated.
The Distinction: Principal vs. Agents
It is important to emphasize that the issues banks often face are not with the incapacitated principal but arise when agents attempt to execute their authority under the POA. In many cases, the language of the POA explicitly provides for situations where one or more agents may not be available. For example, many POAs include clauses such as:
“If any one of the individuals named above is unwilling or unable to serve or to continue to serve as my attorney-in-fact, the other(s) shall continue to serve.
If more than two individuals are serving jointly as my attorneys-in-fact and cannot agree on a decision on my behalf, the decision of the majority shall control.”
This language clearly confers decision-making power on the available agents, ensuring that the inability or unavailability of one agent does not hinder the others from acting in the best interest of the principal.
The Risk-Averse Nature of Financial Institutions
Even with clear legal protections and defined agent authority, some banks prefer to avoid the perceived risks associated with acting on a POA. Concerns include:
- Uncertainty Over Agent Authority: Financial institutions sometimes request additional documentation—such as a resignation letter from an unavailable agent—even when the POA explicitly states that the remaining agents have full authority.
- Delay in Accessing Funds: This reluctance can lead to delays or even denial of services, which can be particularly detrimental when financial decisions need to be made swiftly.
- Potential Complaints: Although consumers can file complaints with the Consumer Financial Protection Bureau (CFPB) if a bank refuses to honor a valid POA, this process is time-consuming and reactive.
Best Practices: Act Proactively While Still Capacitated
To avoid these pitfalls, the most effective strategy is to plan ahead:
- Open Accounts While the Principal Is Capacitated:
Establish financial accounts and other banking relationships before any incapacity occurs. This proactive approach means that your initial trustees or designated account holders can manage the accounts directly, without needing to rely on the POA when a crisis hits. - Designate Successor Trustees:
Consider setting up jointly held accounts or appointing successor trustees. This approach circumvents the need for agents to prove their authority under a POA during emergencies—allowing for a smoother transition of financial control. - Ensure Document Accessibility:
Originals of the POA and related critical documents must be stored securely yet be readily accessible. Avoid tucking these important papers away in a cupboard where they cannot be promptly retrieved. - Proactive Communication with Financial Institutions:
Provide your bank with a copy of your POA in advance. This allows you to clarify any internal requirements and reduces the risk of disputes when the POA is activated. It also underscores the point that the challenge isn’t with the principal’s incapacitation, but with the agents executing their legally granted powers.
When All Else Fails: The CFPB Complaint Option
If a financial institution continues to resist accepting a valid POA, you have the option to file a complaint with the Consumer Financial Protection Bureau (CFPB). Although this route may eventually resolve the issue, it is often time-consuming and underscores the need for proactive measures. By planning ahead, you can largely avoid the complications and delays that lead to such complaints.
Conclusion
A Power of Attorney is a vital tool for ensuring that your financial and personal affairs are managed according to your wishes when you can no longer act on your own behalf. However, the real challenges emerge when agents—rather than the principal—attempt to exercise the powers granted by the POA, and financial institutions hesitate to accept these documents due to perceived risks.
By taking proactive steps such as opening accounts while still capacitated, designating successor trustees, ensuring that originals are easily accessible, and communicating your intentions to your financial institutions in advance, you can significantly reduce the risk of delays and disputes. These measures not only help protect your financial interests but also provide clear pathways for your agents to act effectively when needed—without having to rely solely on reactive measures like filing a complaint with the CFPB.
Planning ahead is the key to safeguarding your financial future and ensuring a smooth, uninterrupted transition of control when the time comes.