Picture this: Your mom is widowed and is starting to have trouble remembering things. You’re worried that she is forgetting to make bill payments. So it seems like a good time to take an active role in her finances.
Fortunately, she has named you her power of attorney. So you take the power of attorney document to her bank to prove that you have the legal right to access her account and make transactions for her now that she might have dementia. However, the bank balks at accepting it.
Unfortunately, this could happen to you if you have to help parents or aging loved ones with their finances. There’s no shortage of stories about banks and financial institutions refusing to honor power of attorney documents. Then caregivers are left scrambling to figure out how to help loved ones with daily money matters when they can’t access their accounts.
To avoid ending up in a situation like this, it’s important to understand why your parents’ financial institutions might not accept the POA you present and what you can do to increase the chances that they will.
[ Read: The Ultimate Guide to Financial Power of Attorney ]
Why banks require power of attorney documents
Banks, credit unions and other financial institutions take their obligation to protect customers and their privacy seriously. So before giving anyone access to a customer’s account, “we want to make sure the necessary legal prerequisites are met,” says Joe Dylla, in-house counsel and vice president of The First National Bank in Sioux Falls. That means confirming that someone has been named power of attorney or is a court-appointed conservator.
Even if your parents or loved ones have signed a legal document naming you their power of attorney to make financial transactions for them, you can’t expect their bank to take your word for it. You’ll need to provide the power of attorney document to the financial institution so it can ensure the document is valid.
The bank must do this to protect its customers from potential elder financial exploitation. “The risk is always there for the bank from a legal standpoint and a reputational standpoint if an agent under a power of attorney is invalid and there is fraud loss to the principal,” Dylla says. “Elder abuse is a significant problem. People get a hold of elderly individuals’ financial lives and enrich themselves.”
Reasons why banks won’t accept a power of attorney
Because banks must protect their customers, there are a variety of reasons they might reject a power of attorney. Here are the most common ones.
The power of attorney isn’t valid. In most states, banks are required to accept valid power of attorney documents. To be valid, the document needs to be signed and typically needs to be notarized. In some states, there also needs to be a witness signature on the document. If, say, your parents downloaded a fill-in-the-blank power of attorney document, signed it but never got it notarized, it might not be valid.
The power of attorney isn’t durable. If you’re trying to access your parents’ or loved ones’ accounts because they are no longer mentally competent, you won’t be able to do so unless the power of attorney is durable. A durable power of attorney remains in effect even if the person who created the document (the principal) becomes incapacitated temporarily or permanently. If the power or attorney isn’t durable and your parents are no longer competent, you no longer have the power to manage their finances for them.
[ See: General, Limited, Springing, Durable—Which Power of Attorney Do You Need? ]
You don’t have necessary documentation for a springing power of attorney. If your parents have a springing power of attorney that goes into effect only in certain circumstances such as incapacity, you will need documents from your parents’ physicians showing that they are incapacitated, Dylla says. Otherwise, the bank won’t simply take your word that your parents can no longer manage their account on their own.
The account is owned by a trust. Dylla says that when The First National Bank in Sioux Falls rejects power of attorney requests, it often is because the POA is attempting to access a trust account set up by a parent. “Just because you’re POA doesn’t mean you have the ability to get added to a trust account,” he says. “The trustee is responsible for that account.” So you would need to be listed as the trustee or added as a co-trustee to have the legal right to access a trust account.
The power of attorney is “stale.” Some banks can be reluctant to accept so-called stale power of attorney documents that were drafted years ago. The fear is that new documents could have been drafted since then, and the banks don’t want to hand over access to customers’ accounts to the wrong people. However, Dylla says that he’s not aware of any state laws that state that older power of attorney documents are no longer valid. So banks can’t reject a power of attorney based on the age of the document.
How to avoid issues with getting a POA accepted
In addition to making sure that the document that names you power of attorney is valid and is the right type of POA, take these steps to smooth the way for gaining access to your loved ones’ accounts when they need your help.
- Go with your parents or aging loved ones to the bank to submit the power of attorney document for approval while they still are healthy and mentally competent. This will help reassure the bank that your parents have entrusted you to be their agent if something happens. “There’s a comfort level there when we have our customer telling us this is who’s in charge,” Dylla says. Plus, the bank will be able to get your parents to sign any of its own POA forms and to get a specimen signature from you to keep on file, if necessary.
- If your parents are incapacitated, contact your parents’ bank to find out what it’s requirements are for accepting a power of attorney. Make an appointment to bring in documents for review, including the power of attorney document, your ID and any medical records indicating your parents shouldn’t be making financial decisions.
If a bank refuses to accept a validly executed power of attorney, ask what legal basis it is relying on to deny acceptance of the document, Dylla says. Ask the bank to put its reason in writing then take it to an attorney, who can send a letter to the bank to resolve the issue or threaten legal action.
Alternatively, if your parents’ bank is creating unnecessary hurdles to access their accounts, you could transfer their accounts to another bank, such as a smaller community bank or credit union. Dylla says that The First National Bank in Sioux Falls has had several adult children move their parents accounts there after meeting with resistance at other banks that weren’t willing to accept valid power of attorney documents. A good bank should work with you, not against you, in a time of need.
[ Keep Reading: Should I Open a Joint Bank Account With My Aging Parent? ]