16 Jun When banks won’t take legal documents

Q. My wife handles the finances for her parents. A continuing problem is that many institutions will not accept a durable general power of attorney unless it is on their particular form. Can they do this? What happens in cases of dementia?
— Frustrated

A. This is a huge problem for so many who thought they had established all the correct estate planning documents to make it easier should they be unable to manage their own affairs.

It’s a growing problem, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

She said it’s particularly disturbing in view of the fact that The New Jersey Revised Durable Power of Attorney Act specifically provides that (1) except as specifically set forth in the act, “with respect to banking transactions, banking institutions shall accept and rely on a power of attorney which conforms to this act and shall permit the agent to act and exercise the authority set forth in this act;” and (2) “no banking institution acting in reliance on a power of attorney … nor any person acting on behalf of such institution, shall be held liable for injury for any act or omission if it is performed in good faith and within the scope of the institution’s or person’s duties, unless the act or omission constitutes a crime, actual fraud, actual malice or willful misconduct.”

Thus, Romania said, banks are required by statute to rely on a form of power of attorney which is not its own. Banks are also are insulated from liability for such reliance, but they still refuse to accept such powers of attorney.

She said the statute does allow a banking institution to refuse to act or rely upon a power of attorney first presented to it more than ten years after its date or on which it has not acted for a ten year period “unless the agent is either the spouse, parent or a descendant of a parent of the principal.”

However, many times the banks refuse to act on a power of attorney regardless of the relationship between the principal and agent and even when the document is much less than ten years old, Romania said.

Moreover, if the banking institution refuses to rely on the document, the institution is required to notify the agent in writing the reason for the rejection, she said, noting the reason for rejection is rarely provided and much less in writing.

“Florida’s statute actually provides that if a third person improperly refuses to accept a power of attorney, it can be subject to damages including attorney fees,” Romania said. “The New Jersey statute does not provide the same remedy.”

What can be done?

Romania said if the principal is competent, powers of attorney should be updated approximately every five years but at least every ten years.

“Where the financial institution is not accepting a properly prepared and executed power of attorney, ask that the document be provided to its legal department for review and a written reason for rejection supplied pursuant to the New Jersey statute,” she said. “That generally generates a review of the document instead of merely a pro forma rejection of a form that is anything other than the banking institution’s own form.”

If properly prepared and signed, it should then be accepted, she said.

Romania said a competent principal may want to consider moving his or her funds out of a banking institution that refuses to honor a properly prepared and executed power of attorney.

A possible but more expensive alternative is to prepare a living or revocable trust and move the funds into the trust.

“The principal would be the initial trustee and name co-trustees or successor trustees to act with him or her or after he or she could no longer manage his or her affairs,” Romania said. “A power of attorney would not be necessary because the trust document would give the trustee his or her authority.”

If a person has dementia and a new power of attorney — or the bank’s form — is impossible to complete, you enter an entirely different area.

Romania said petitioning the court for legal guardianship is expensive — and can be emotional — and should be the last resort and used only if a properly prepared power of attorney has not been or cannot be properly executed.

Also, banking officials have suggested naming other family members as joint tenants on accounts in order to provide access instead of using a power of attorney form, Romania said.

“Think twice before naming someone as a co-owner as it provides substantially different legal and tax ramifications than naming a person as an agent on a power of attorney,” she said. “Naming a co-owner is not the same as appointing an agent.”

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This post was first published in June 2016.