Question:

I had a client who was POA for her mom (not my client) and they did a POA with the bank using the bank’s POA document instead of a POA with the lawyer (trying to save money), and because the bank did not properly notarize the document, when the POA was trying to buy a CD with proceeds from the sale of the mom’s home, she was unable to do it. They had to leave the funds in a savings account at a much lower interest rate because they were unable to purchase the CD. With the same mom, the bank purged the records after 10 years so that at the mom’s death, the bank no longer had the Payable on Death beneficiary arrangement on file. The family was unable to produce a copy of the document naming the POD and ended up probating the account after the mom’s death.

Response:

Those are both risks when working with banks or other financial institutions, one of the reasons I’ve become a proponent of revocable trusts.

Durable Powers of Attorney

In terms of durable powers of attorney, the result you describe is a bit surprising. While every state’s laws are different, in general durable powers of attorney do not have to be notarized unless they are being used for a transaction involving real estate, whether buying, selling or taking out a mortgage. It’s even more surprising that the bank would impose this requirement for its own power of attorney form without instructing its employees to always get them notarized, especially since they appear to accept the document for some transactions and not others — the ones for which they would be paying a higher rate of interest. (A bit self serving?)

In our office, we do notarize all durable powers of attorney we prepare for our clients just in case they will have to be used for transactions involving real estate and just to make them look more official. Of course, we have a lot of notaries in the office, so it’s easy.

Making the documents appear more official helps because sometimes financial institutions resist honoring powers of attorney for one reason or another. They sometimes imposes a “staleness” doctrine that is no where in the law, refusing to honor older powers of attorney. They are also usually more comfortable with their own power of attorney forms, so we advise our clients who execute general powers of attorney with us to also sign those offered by their various financial institutions. It’s a bit of a bootstrap or bells and whistles approach, but it’s more likely to work.

Payable on Death

It’s also surprising that the bank in question does not have records of payable on death designations for its accounts. Of course, we should all keep good records of such designations, as well as beneficiary appointments on life insurance policies and retirement accounts, but that may be more than we can expect with so much going on in life these days.

The other problem with all these beneficiary designations is that it’s not unusual for them to become out-of-date. People pass away. Relationships change. Financial situations change. Often, people change their estate plans but neglect to update all the different beneficiary designations they may have on various accounts.

Revocable Trusts

Which brings us to revocable, or “living,” trusts. Banks and other financial institutions are much more likely to accept the instructions of a duly appointed trustee regarding the investment and management of trust accounts. In addition, if you need to update your plan, you only need to do so once — on the trust — not on all the different accounts where you may have named beneficiaries.

Revocable trusts also serve many other purposes, including account consolidation, incapacity planning and probate avoidance. They also permit grantors to fine tune how they want their assets managed, whether for themselves or for other beneficiaries.