It Might be Time to Update Your Power of Attorney

By Jeremy Hyndman

Your old power of attorney might not allow your attorney-in-fact to open a new CD, switch banks, or follow your financial advisor to a new investment firm!

Recently I have seen a disturbing uptick in financial institutions refusing to honor the instructions of someone acting under a power of attorney—it may be time for most folks to update their POA.

First, a quick recap on POAs:

• Powers of attorney are essential estate planning documents—they may affect your quality of life more than a Will or a revocable living trust.  A power of attorney (“POA”) is a document where you “deputize” someone to make financial or medical decisions for you if you cannot.  For example, if you have dementia, the person you deputize (technically called an “attorney-in-fact”) needs discretion to manage your finances.

Most POAs—including templates you find online—give your attorney-in-fact broad authority to open and close accounts and transfer assets, which might lead you to believe your “deputy” will be able to do whatever he or she needs to do to manage your assets, but you would be wrong.

That broad language doesn’t cut it in the following scenarios:

• You are in a coma. You have a retirement account with beneficiary designations.  Your financial advisor moves to a new firm, and your attorney-in-fact decides it would be a good idea to follow your advisor.  Your attorney-in-fact might not be able to open an account at the new firm with the same beneficiary designations as your old account!
• You and your spouse have dementia. You have a joint savings account paying a low interest rate.  You and your spouse’s attorney-in-fact might not be able to open a joint CD or money market account that earns more interest!
• You have a CD with a POD (payable on death) or TOD (transfer on death) designation. Your attorney-in-fact might not be able to open an account that pays more interest and preserves your POD/TOD designations!

Why are financial institutions refusing to honor POAs?  The answer lies in the limits of an attorney-in-fact’s authority.  One thing an attorney-in-fact cannot do is change your Will.  Some accounts have characteristics that are similar to a Will in that they establish who gets the assets in an account when you die.  Most joint accounts provide that if one account holder dies, the survivor gets the account.  Similarly, retirement accounts and other accounts with beneficiary designations spell out who inherits an account.  Just as your attorney-in-fact cannot change who inherits under your Will, he or she also generally cannot change who inherits by joint ownership or beneficiary designation.  This is all spelled out in RCW 11.125.240.

All of this makes sense.

The problem arises when an attorney-in-fact tries to set up a new account that mirrors beneficiary designations in an existing account.  This could be a retirement account at a new investment firm, a joint certificate of deposit (“CD”) at a bank, or even a new brokerage account or savings account. Washington statute says that broad, general language about financial powers does not authorize an attorney-in-fact to establish beneficiary designations or joint ownership of assets.

Unfortunately, many financial institutions myopically refuse to set up a new account with beneficiary designations or joint ownership that mirrors an existing account.  To them, this is “establishing” a new beneficiary designation, even though in substance the attorney-in-fact is simply maintaining the status quo.

This leads to absurd results.  I just got off the phone with legal counsel for a Washington bank.  My client—who has given me permission to share this story—was attorney-in-fact for her two parents who suffer from dementia.  They had a joint savings account.  She wanted to set up a joint money market account.  My conversation with the bank went something like this:

Bank lawyer: I would like to help the attorney-in-fact, but RCW 11.125.240 clearly prohibits establishing joint ownership of assets, so we cannot open a joint money market account.

Me: What do you mean, establishing joint ownership?  The assets are already in a joint savings account!  Transferring assets from a joint savings account to a joint money market account doesn’t establish joint ownership—it just maintains the status quo.

Bank lawyer: Functionally it’s the same result, but a new joint account is, well, new, so it would be establishing something new.

Me: Hold on, the POA authorizes the attorney-in-fact to withdraw funds, right?

Bank lawyer: Right.

Me: And the POA authorizes the attorney-in-fact to open new accounts, right?

Bank lawyer: Sure.

Me: So the attorney-in-fact could withdraw funds from a joint account and set up a separate money market account in the name of just one parent?

Bank lawyer: Sure.

Me: And that would be a real change to the status quo, right?  That would be like removing survivorship rights from an account—a real change to my clients’ parents’ estate plan?

Bank lawyer: Sure, we would let the attorney-in-fact do that.

Me: But you won’t let the attorney-in-fact keep things the same by making the money market account a joint account?

Bank lawyer: Exactly.  We can’t let you keep things the same because it would be doing something new, but you could do something new by setting up separate accounts and that would be fine at our bank.

I’ll spare you the rest of the conversation.

Maybe the problem is with financial institutions, and maybe it is a problem with the statute itself, but the solution is the same: your power of attorney needs to specifically give your attorney-in-fact the authority to establish new accounts that mirror beneficiary designations or joint ownership in old accounts.  Washington law allows this, but only if the POA specifically and explicitly authorizes this mirroring.  This empowers your attorney-in-fact to make good financial decisions for you, while preserving your estate plan.

So dig out your old POA, dust it off, and take a look.  Does it explicitly authorize your attorney-in-fact to mirror beneficiary designations from old accounts in new accounts?  If not, it’s probably time to reach out to an estate planning law firm that is familiar with this issue.

To learn more about Powers of Attorney and estate planning in Washington, contact the attorneys at Basalt Legal PLLC.  We serve estate planning clients across the State of Washington from our offices in Walla Walla, and can be reached at 509.529.0630.

This article is for general informational purposes only, and should not be relied upon as legal advice because every legal situation is different, and we do not update articles on our website to reflect changes in the law, so this information could be out of date.  You should not act on this information without first consulting legal counsel.