Refreshing, It’s Not Just for Beverages

A somewhat disturbing trend has come to my attention of late. I had a client recently who came to the office with an issue regarding his elderly mother. The client was one of three children, the only close-by child, and the first-named agent under his mother’s General Durable Power of Attorney. Mom had lost her husband a number of years ago, and after his death, she did the right things and handled his estate administration and she updated her own documents. She didn’t really change much but she removed her late husband as an agent under the POA and made her close-by son the first agent under the POA if she became incapacitated. That was about five years before this meeting. Well, the son came in and said that mom was beginning to lose her faculties and he thought it best to have her examined so he could become acting agent under the “springing” power of attorney. Two physicians, one her long-time doctor, and another whose son hired for a second opinion, wrote letters stating they felt she was not competent due to dementia. Thus, under the POA son could comfortably begin to act to assist with paying her bills, dealing with her accounts, and doing all those things agents are allowed and supposed to do when this type of thing occurs.

So, where is the problem? When the son went to the bank, the bank told him that because the POA was about 5 years old (actually because it was older than three years) they would not honor it. This meant that the POA was not valid in their eyes. This was a big issue because mom had an IRA account at the bank and in addition to needing to take a “required minimum distribution” (RMD) (the amount a person must withdraw from a retirement account after a certain age to avoid certain adverse income tax consequences), she just flat-out needed the money for her care and in-home health aide.

So what is the deal? This bank, which will remain nameless, and which is not a major bank but a community bank, had instituted a policy that they would not honor older POAs and they advised that they prefer their own bank POA and that a general POA be updated periodically (every three years) so that you know they will accept it.

If this sounds ludicrous to you, that is because it is. The whole reason you do estate planning and planning for incapacity is for just this situation. Mom also had updated her documents relatively recently, and they still said “no go.” Also, one reason for having a POA is that you sign it during a period of capacity and before a crisis. This situation also begs the question: If the POA is honored and an agent acts under it for more than three years, would they still have an issue with it?

The long and short of it is: you have to regularly review and update your documents and I am advising my clients that they should consider REFRESHING their documents (especially financial POAs) very regularly. What is the result for mom? At this time we do not know – the money in the IRA is still locked up and we may have to file on her behalf to have her son named Guardian of her assets and person (health). The problem with that is that such a proceeding is an in-court action that costs thousands of dollars and really should not be necessary. In the meantime, we have contacted the bank with a stern letter requesting that they provide a legal basis for not honoring the POA and at the very least allow mom to withdraw enough funds to avoid the RMD penalty and to pay any attorney fees and for her son’s inconvenience. We shall see, but I have heard of this issue elsewhere and it has clients and attorneys such as myself quite worried. Perhaps there may be a legislative change in order if this continues to occur? Stay tuned.