Can a Power of Attorney Withdraw Money from Bank Account?

Can a Power of Attorney Withdraw Money from Bank Account?

A power of attorney, or POA, is a legal document giving another person the legal authority to make financial and legal decisions on your behalf. Known as an agent or attorney-in-fact, you should only name someone to be your POA, if you trust them implicitly and believe they will always manage your affairs with your best interest in mind, according to the recent article titled “Can A Power Of Attorney Transfer Money To Themselves?” from Washington Independent.

There are different types of power of attorney and ethical and legal considerations surrounding the transfer of money. The two main types of POA are general POA and durable POA. A general POA gives the agent broad authority to handle financial and other matters on your behalf, and the power ends if you become incapacitated. A durable POA remains in effect, if you become incapacitated and continues until your death or until it is revoked.

The powers given to an agent vary widely depending on the state laws governing the document, and also vary depending on the specific document. In general, an agent can use the POA to handle a wide range of financial matters, including paying bills, managing investments, buying and selling real property and signing legal documents.

Using non-state specific blank forms downloaded from the web leads almost always leads to complicated (read: costly and time-consuming) problems for an agent. The specific powers granted to the agent need to be spelled out in the document. For example, you may wish for your POA to manage paying household bills, but not to sell the house.

There are also ethical considerations. While the POA gives the agent the authority to transfer money on your behalf, they are fiduciaries and are held to a higher standard of ethics. They must act in your best interest at all times.

Transferring money from your account to the agent’s account for their benefit would be a clear violation and could result in legal consequences, including criminal charges. The transfer could be challenged in court and the agent could be held accountable for any damages.

If you are concerned about a person abusing this role, there are steps to take to minimize the risk.

  • Chose a trustworthy and reliable person to serve as your agent.
  • Limit the powers granted by having a customized Power of Attorney drafted by an experienced estate planning attorney. The document could specify that the agent is not permitted to transfer money to themselves or use your funds for their personal benefit.
  • Monitoring the action of the agent. If you are incapacitated, name a person to monitor the agent and provide them with contact information for your estate planning attorney if there are any questions.

Reference: Washington Independent (Feb. 7, 2023) “Can A Power Of Attorney Transfer Money To Themselves?”

Why Is Power of Attorney So Important for Estate Planning?

Why Is Power of Attorney So Important for Estate Planning?

One of the most overlooked and important documents in estate planning is the Power of Attorney. A recent article from Farm Progress, “Often overlooked estate planning issues: Powers of attorney,” explains how this document works and why it’s so important.

Most people will become incapacitated at some point in our lives, especially as we age. Some experts believe this number is as high as two-thirds of all Americans who, at some point in their lives, will become incapacitated. We are living longer and the chances of developing a condition to impair or rob us of the ability to make important health or financial decisions increases every year.

Powers of Attorney are just as important for young adults because the risk of disability or impairment is often actually higher than death for someone younger.

Designating a Power of Attorney gives you the control of choosing a trusted person to step in and act as your agent. A “Durable” POA remains in effect until it is revoked, or upon the death of the person who made it.

The person establishing the POA is the “principal.” The principal has the right to revoke the POA until they lack capacity to do so. The person or persons named to act for you through your POA is your “attorney-in-fact” or “agent.”

You may choose to have the POA in a “durable” form or a “springing” POA. The springing POA becomes effective only when you have been determined to be incapacitated. This sounds like a good idea. However, it comes with an issue: for the springing POA to become active, there must be proof of incapacity.

Depending upon your state, this may require a court to review documents attesting to your incapacity from a physician or health care provider. The durable POA is always in effect and your agent can step in for you immediately.

Everyone should also have a Health Care Power of Attorney, sometimes called a Health Care Proxy or a medical POA. The Health Care POA should be someone who can act quickly, so it’s optimal to name someone who lives nearby, in case there’s an emergency and decisions need to be made in a timely manner.

While it’s tempting to simply download a form from the internet, these two POAs are best prepared with an estate planning attorney, so they align with your state’s laws and your wishes. You may want someone to make all decisions for you, or you may want to limit their powers. Your estate planning attorney will be able to create a document to suit your specific needs.

It’s also important for your estate plan to address digital assets, since today so much of our financial and medical information is stored online. Your agent also needs to be able to access your digital life, to keep your life running smoothly and make informed decisions.

Reference: Farm Progress (Oct. 18, 2022) “Often overlooked estate planning issues: Powers of attorney.”

Do You Need Power of Attorney If You Have a Joint Account?

Do You Need Power of Attorney If You Have a Joint Account?

A person with Power of Attorney for their parents can’t actually “add” the POA to their bank accounts. However, they may change bank accounts to be jointly owned. There are some pros and cons of doing this, as discussed in the article “POAs vs. joint ownership” from NWI.com.

The POA permits the agent to access their parent’s bank accounts, make deposits and write checks.  However, it doesn’t create any ownership interest in the bank accounts. It allows access and signing authority.

If the person’s parent wants to add them to the account, they become a joint owner of the account. When this happens, the person has the same authority as the parent, accessing the account and making deposits and withdrawals.

However, there are downsides. Once the person is added to the account as a joint owner, their relationship changes. As a POA, they are a fiduciary, which means they have a legally enforceable responsibility to put their parent’s benefits above their own.

As an owner, they can treat the accounts as if they were their own and there’s no requirement to be held to a higher standard of financial care.

Because the POA does not create an ownership interest in the account, when the owner dies, the account passes to the surviving joint owners, Payable on Death (POD) beneficiaries or beneficiaries under the parent’s estate plan.

If the account is owned jointly, when one of the joint owners dies, the other person becomes the sole owner.

Another issue to consider is that becoming a joint owner means the account could be vulnerable to creditors for all owners. If the adult child has any debt issues, the parent’s account could be attached by creditors, before or after their passing.

Most estate planning attorneys recommend the use of a POA rather than adding an owner to a joint account. If the intent of the owners is to give the child the proceeds of the bank account, they can name the child a POD on the account for when they pass and use a POA, so the child can access the account while they are living.

One last point: while the parent is still living, the child should contact the bank and provide them with a copy of the POA. This, allows the bank to enter the POA into the system and add the child as a signatory on the account. If there are any issues, they are best resolved before while the parent is still living.

Reference: NWI.com (Aug. 15, 2021) “POAs vs. joint ownership”

Can I Revoke a Power of Attorney?
An concept Image of a power of attorney

Can I Revoke a Power of Attorney?

Spouses and partners chosen by adult children often lead to estate planning challenges. In one case, a parent worries that a second husband may be a poor influence and wants to revoke the power of attorney originally granted to a daughter. How to do that legally and without any hurt feelings is examined in the article “Estate Planning: Revoking a power of attorney” from nwi.com.

A Power of Attorney is a document that allows another person to act on your behalf. The person designated is referred to as the “Attorney in Fact” or the “Agent.”

The problem this family faces, is that any revocation of a POA must be in writing, must identify the person who is to be revoked as the POA and must be signed by the person who is revoking the POA. Here’s where the hurt feelings come in: the revocation is not legal, until and unless the agent has actual knowledge of the revocation.

You can’t slip off to your estate planning lawyer’s office, revoke the POA and hope the family member will never know.

Another way to revoke a POA is to execute a new one. In most states, most durable POAs include a provision that the new POA revokes any prior POAs. By executing a new POA that revokes the prior ones, you have a valid revocation that is in writing and signed by the principal.

However, a daughter who is duly appointed must be notified. If she is currently acting under the POA and has a copy of it, there’s no way to avoid her learning of the parent’s decision.

If, however, the daughter has never seen a copy of the POA and she is not currently acting on it, then you may be able to make a new POA without notifying her. However, it may create a sticky situation in the future. Notification may be your only option.

If the POA has been recorded for any reason, the revocation must reference the book, page and instrument number assigned by the recorder’s office and be recorded. If the POA has been provided to any individuals or financial institutions, such as banks, life insurance companies, financial advisors, etc., they will need to be properly notified that it has been revoked or replaced.

Two cautions: not telling the daughter and having her find out after the parent has passed or is incapacitated might be a painful blow, with no resolution. Telling the daughter while the parent can discuss the change may be challenging but reaching an understanding will at least be possible. A diplomatic approach is best: the parent wishes to adjust her estate plan and the attorney made some recommendations, this revocation among them, should suffice.

Not revoking the power of attorney correctly could also lead to an estate planning disaster, with the daughter challenging whoever was named as the POA without her knowledge.

Talk with your estate planning lawyer to ensure that the POA is changed properly, and that all POAs have been updated.

Reference: nwi.com (March 7, 2021) “Estate Planning: Revoking a power of attorney”