Estate planning requires preparation for the time that a person cannot handle their financial and health matters. A financial power of attorney is essential and can even address matters after its maker’s death. However, these powers of attorney often face hurdles.
The power of attorney only identifies financial agents to act on behalf of the maker of the document, also known as the “principal.” The power of attorney does not prevent the principal from acting and handling their finances, even when they are making bad decisions or depleting their funds.
Banks and other financial institutions have traditionally scrutinized powers of attorney very closely. Over the last 15 years, however, these institutions have dishonored these documents more frequently. There are no penalties if a financial institution does not recognize a legally valid document.
There are a variety of reasons for this trend, including the enactment of the Patriot Act, Dodd-Frank Act, the mortgage crisis and privacy concerns, which the institutions rely upon to protect their assets. Even though Michigan law permits a durable power of attorney to continue regardless of age, some institutions will reject them for being too old. Some dishonor them for being too new.
Institutions may request additional documents. They have requested that the principal execute a statement that the power of attorney is still valid even though the principal is incapacitated, and state law permits the agent to act on the principal’s behalf without this acknowledgment. Some institutions require the addition of specific form language into these documents.
If a power of attorney is not honored after its principal is incapacitated, family members may need to take the time-consuming and costly option of going to probate court. They can seek a protective order to enforce the power of attorney or have a conservator appointed to handle the principal’s finances.
Adding a trust to a financial power of attorney may eliminate some of these problems, assure assets are properly distributed and that a successor trustee acts on the principal’s behalf when the principal is incapacitated. Financial institutions tend to honor the successor trustee’s instructions upon the presentment of a certificate of trust.