11/10/2014 - Does a Power of Attorney Really Work? Part II

Sometimes banks and other financial institutions, such as brokerage houses and insurance companies, refuse to honor a power of attorney when they think the document is "stale," that is, a significant amount of time has passed since the POA was executed. This refusal means that an agent may have a useless document if it was executed a decade or two prior. This is not a "legal" reason, but it is a policy adopted by many financial institutions. In real estate transactions, buyers, their attorneys and title companies, may choose not to recognize a power of attorney if it was not filed or recorded with the recorder of deeds in a timely matter. If the power of attorney document designates only one agent and that agent is either incompetent or deceased, then the document is of no use.

Sometimes a strongly worded "lawyer letter" threatening a lawsuit addressed to the financial institution can be successful in getting them to honor the instructions of an agent under a power of attorney. Sometimes, what I call the Khrushchev approach, where the lawyer yells and pounds on the desk with her shoe, gets the desired result.

If you cannot get the third party, usually a financial institution, to honor the power of attorney, what can you do? The only thing you can do is seek to have a guardian appointed for the principal---a court procedure that is costly and cumbersome and which the durable power of attorney was intended to avoid.

Regulators and legislators are looking for a solution to these problems. There must be a way for loved ones and trusted agents to take care of a principal's financial affairs without court supervision. But at the same time, there need to be safeguards against abuse.

All of these things are good examples of why it is so important to update one's estate plan regularly. Ideally, powers of attorney should not be more than five years old. An estate planning attorney will also review the important options of designating primary and secondary agents so that an individual's careful advanced planning will be valid when they need it most.

Part III is next week. Stay tuned to learn what you can do to make sure your POA will be honored.

-Patti Spencer