The Durable Power of Attorney – Part 2 (June 2012)



Not all Powers of Attorney are of equal quality.  You need a carefully written Power of Attorney which contains special wording for estate planning situations.  A Power of Attorney does not give the attorney-in-fact the power to make gifts unless there is special wording which permits the making of gifts.  For example, suppose that your husband becomes incapacitated and has to go to a nursing home.  When he qualifies for Medicaid to pay the nursing home expenses, the Medicaid office will give you 90 days to transfer all except $2,000 of assets from your husband to you.  If the Power of Attorney does not contain special wording allowing gifts, you may not have the power to legally transfer your husband’s assets from him to yourself.  The Medicaid benefits could be lost because the Power of Attorney was not written correctly.

Also, if you are wealthy, it is very important to have the gifting power worded correctly.  I have seen Powers of Attorney written in such a way that they create unexpected estate tax problems.  For example, if father owns $2,000,000 of assets and son owns nothing, and father gives son a Power of Attorney with the wrong wording in the gifting power, if the son dies in 2013, the son could be taxed $435,000.00 because of the assets the father owns!  I have seen this mistake in the Power of Attorney form used by one of Honolulu’s most famous estate planning attorneys.

A financial institution does not have to honor your Power of Attorney.  Here is an experience we had.  An elderly man was in the hospital, paying $1,000 per day for staying there!  He had to be moved to a nursing home, to reduce the cost from $30,000 a month to $7,000 a month.  The nursing home required financial information.  The wife’s brother, who was one of the attorneys-in-fact, took the Power of Attorney to the three financial institutions where the elderly couple had bank accounts and C.D.s.

At first, one of the financial institutions said they would honor the Power of Attorney for obtaining information about accounts, but not to withdraw money from accounts.  The two other financial institutions would not honor the Power of Attorney.  They said they have their own Power of Attorney form which they wanted signed.

After receiving a phone call from our office, the first financial institution agreed to honor the Power of Attorney for withdrawal of money from accounts.  Today, that financial institution does not honor Powers of Attorney. Our contact with the second financial institution resulted in their attorney reviewing the Power of Attorney, after which he instructed the branch to honor it.  I have been told that financial institution today does not honor Powers of Attorney. Our office contacted a Vice President of the third financial institution, who then instructed the branch to honor the Power of Attorney. Whenever I meet with clients, I warn them of which financial institutions will likely not honor their Power of Attorney, and discuss options of how to avoid that problem.

Some businesses are more comfortable about honoring a Power of Attorney if it was made recently.  Therefore, you may want to consider updating your Power of Attorney from time to time.  One large financial institution will honor Powers of Attorney less than 5 years old; one title company likes Powers of Attorney to be less than 3 years old; and one health insurance carrier likes it to be less than 1 year old.

Check with every financial institution at which you have an account. Find out whether they will honor your power attorney if you become incapacitated. If they will not honor your power of attorney, you could have your revocable trust be the account owner, because banks seem to allow successor trustees to access accounts.  Other options are to sign their form to appoint an agent for that account, or to change banks.

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