The Durable Power of Attorney and Bank Disapproval
By: Robert J. Shanahan, Jr., Esq.
Any good estate planning attorney will have a client prepare a Durable Power of Attorney when preparing a Last Will and Testament. Elder law attorneys will also urge clients to prepare them, especially for those clients who are in the early stages of dementia, so as to avoid the necessity of filing for guardianship. It’s just good lawyering. Unfortunately, often when the agent under the Power of Attorney attempts to use the document at the bank, it is disapproved for some reason or another, and the intent of the client, not to mention the agent, is frustrated.
Under Common Law, a Power of Attorney is terminated upon the incapacity of the principal. The Durable Power of Attorney addresses this issue by containing language to the effect that, “this Power of Attorney shall not be affected by subsequent disability or incapacity of the principal.” It remains valid through the incapacity of the principal. This is obviously useful in that the principal can designate their own choice of agent to handle their financial affairs and avoid a guardianship proceeding should they lose capacity in the future.
Banks Have Issues
Increasingly, attorneys are reporting that their Durable Powers of Attorney are being rejected by bank branches.
Especially in the vast majority of states which do not have a statutory form as does Pennsylvania, banks are very hesitant about following the variety of documents they receive, all entitled, “Durable Power of Attorney”. Especially in the large national banks, the local branch staff are not trained as they once were, or no longer have the authority to make local decisions. Bank staff is required to defer to a “legal department” somewhere far away. I have found that one bank’s “legal department” is devoid of even a single lawyer, and it is populated with paralegals who have no authority to deviate from a company checklist. Some banks have their own rules about Powers of Attorney, which are not law, and can be contrary to law. All of these create problems for the client and make our advice and the fee charged to prepare a Durable Power of Attorney essentially useless.
The “Stale” Power of Attorney
By far the most common reason for a bank to reject a Durable Power of Attorney is that it is “stale”. Some years ago, one large national bank held that all Powers of Attorney dated more than ten years were void, or “stale”. This policy spread to the other banks, where it is now a universal rule. This policy is not based on law. In fact, in New Jersey, the Revised Durable Power of Attorney Act states that documents in excess of ten years are enforceable if the agent is the spouse, parent or other descendant of the principal. Rarely is an agent not related to the principal, yet banks in New Jersey routinely reject “stale” documents. This bank policy is very troublesome where a principal becomes incapacitated in the ten-year period. If the Power of Attorney is held to be “stale”, the bank defeats the statutory intent of creating “Durable” Powers of Attorney which survive incapacity. Clearly, the bank has no such authority.
What is a Person to Do?
As far as bank accounts are concerned, it is more effective for the client to go to the bank branch and use the bank’s form or procedures to name an agent on their accounts, than presenting your Power of Attorney document. By using the bank’s procedures, the client will avoid the bank’s nervousness about following a Durable Power of Attorney written by someone outside of its institution. The client must be cautioned not to allow the bank to put the agent on the account as a joint owner. The letters “POA” or similar language must be stated after the agent’s name on the account. A joint owner has a legal right to all of the money in the account, and there are significant elder abuse situations resulting from this practice. Many branch employees are not aware of the difference and may even tell a client that they cannot indicate POA on the account. Instruct your client to call you from the bank if there is a problem so you can speak with bank personnel and get this right for your client.
Another suggestion is to make your Power of Attorney document look “official” but non-threatening:
- Use different fonts on the document. I suggest using the “small caps” font in bold for names and headings.
- Make sure the notary embosses the document with their seal.
- Sign it in blue ink to avoid a claim that the document is not an original.
- Make the document easy to read. Do not use a single-spaced, run on document, listing power after power given to the agent. Think of who is going to read this document (hint: it won’t be another lawyer).
- Change your legal wording. I once had an issue with a branch manager who insisted that my Power of Attorney did not give the agent the right to withdraw money from a bank account. He didn’t understand the phrase, “draw on accounts”.
- If the situation warrants it, do not be afraid to file a court action to enforce your document. Review your state’s statute. I have found filing in court to be very effective. In one instance, I was given a bank contact to call directly with any future problems.
- Work with your state NAELA chapter to meet with your state banking association on these and other issues
A Durable Power of Attorney is a very effective tool to help our clients in carrying out their wishes. This is particularly true of our elderly clients who may be facing incapacity. While there are problems, they can be resolved.
About the Author
Robert J. Shanahan, Jr. Esq. focuses his practice on estate planning, elder law, and probate matters. Mr. Shanahan additionally practices in business law and non-profit matters. He is a trained, experienced mediator and offers dispute resolution services, particularly for those matters arising from probate and elder law matters. Additionally, Mr. Shanahan’s firm, Law Offices of Robert J. Shanahan, Jr., LLC, offers a breadth of additional services to families and businesses throughout central New Jersey.
Mr. Shanahan received his Juris Doctor from the Temple University School of Law in 1985 and obtained licensure in New Jersey in the same year. He received a Bachelor of Arts degree in History in 1981 from William Paterson University, with honors. Robert is a member and Past President of the Hunterdon County Bar Association and is a member of its Elder Law Committee. He is also active in the National Academy of Elder Law Attorneys and is a member of the Hunterdon Medical Center’s Bio-Ethics Committee. He is pro bono counsel for Volunteer Guardianship One on One, in Flemington, New Jersey.
THE INFORMATION CONTAINED HEREIN IS MERELY AN EDUCATIONAL SERVICE TO PROVIDE BASIC, GENERAL INFORMATION AND IS NOT LEGAL ADVICE OF ANY SORT. FURTHER, BY EXPLORING THIS INFORMATION, YOU UNDERSTAND AND AGREE THAT NO ATTORNEY-CLIENT RELATIONSHIP IS BEING FORMED.
1 N.J.S.A. 46:2B-13 (b). See also, N.J.S.A. 46:2B-8.3, which states that a Durable Power of Attorney is not affected by lapse of time. The New Jersey statute also states that third parties are not liable for following a Power of Attorney in good faith. See N.J.S.A. 46:2B-14.