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The Battle Between Powers of Attorney and Financial Institutions

by | Mar 27, 2024 | Firm News

A big frustration in an estate planning practice involves powers of attorney and getting banks to recognize them.   Powers of attorney are important because they are an alternative to a conservatorship and are very helpful in other situations as well. I recommend that everyone over the age of 18 have a power of attorney.   A power of attorney can be utilized in circumstances where the principal – the person executing the power of attorney – retains capacity, but an action is needed to be taken under the power of attorney for convenience purposes.  I had a client several years ago that needed to file her and her husband’s income tax return.  Her husband was serving in the military overseas and she needed his signature – this was in the days before docu-sign.  My client was able to utilize the immediately effective power of attorney to sign the tax return as her husband’s agent (also referred to as attorney-in-fact).

Over the last several years, we have had multiple issues with banks accepting our attorney drafted powers of attorney.  For example, just recently I was contacted by the agent named in a power of attorney I drafted for a client.  She informed me that the bank was requiring her to bring in the original executed power of attorney because they would not accept a copy and they would not accept it electronically.  The issue in this case was that the agent could not locate the original executed power of attorney and she was in a different state so she was unable to physically take the original to the bank.  Even though there was a provision in the power of attorney specifically stating that a copy of the power of attorney holds the same authority as the original power of attorney, the bank still refused to accept a copy.  These types of roadblocks put up by the bank defeat the purpose of executing a power of attorney.

Another issue is getting the financial institution to recognize the authority of the agent under the power of attorney.  I have had several situations where the financial institution will not allow the agent to take a certain action because the verbiage in the power of attorney is not exactly what the financial institution was used to seeing.  There have been circumstances where I have had to get my client appointed conservator of the estate just to handle a single asset with an institution because the institution did not recognize the authority under the power of attorney.

I am starting to have my clients execute both an attorney drafted power of attorney and a statutory power of attorney. A statutory power of attorney is one that is in the exact format and wording found in Probate Code Section 4401. I explain to my clients that the statutory power of attorney is for the banks and the attorney drafted one is for everything else.  There are several reasons why the statutory power of attorney is specifically to be used with banks.  One reason is that it is a form that the bank is – or at least should be – familiar with.  The second reason the statutory power of attorney is for the banks is due to the requirement in Probate Code Section 4406 which provides that if a bank (or any third party) refuses to honor a properly executed statutory power of attorney and the agent has to bring a court action to enforce it, the court SHALL award attorney fees to the agent for that action.  That code section does not apply to any other power of attorney.

An attorney drafted power of attorney is still important because it can include a lot more powers and instructions than a statutory power of attorney.

You may want to review your powers of attorney and see if you have both a statutory power of attorney and an attorney drafted one.  If you do not have one or both, then contact my office and we can assist you with those documents.