Cautionary Tales - When a Bank Wont Accept a Power of Attorney - Episode 273

Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is the “cautionary tales” topic. And on these “cautionary tales” episodes of Legal Tea, we normally talk about real-life cases with real-life clients that are things me or my office have worked on -or they are things that I think are generally good things to be aware of, that way you do not turn into a cautionary tale on this podcast one day! Well today, I have a story for you. And, honestly, this is one of those stories that I have told clients for YEARS. Today's story involves a Power of Attorney, a person with advanced dementia, a relatively small bank account, a financial institution that absolutely refused to recognize a perfectly valid Power of Attorney, and… a lawsuit. We’re going to talk about the time my office sued a financial institution over a $14,000 account.

Now, before anybody hears that and thinks, "Wait, you sued somebody over fourteen thousand dollars?" … well, yes. Crazy enough, the amount of money was actually part of what made the situation so frustrating. This was not some enormous investment account involving millions of dollars or some incredibly complicated financial transaction. It was a $14,000 account belonging to an elderly woman who had advanced dementia, and her son was her properly appointed agent under her Power of Attorney. He was simply trying to access his mother's money to take care of her affairs. And the financial institution made it extraordinarily difficult.

So, let me first tell you about what happened… Several years ago, we had a client who had advanced dementia. At that point, she could not participate meaningfully in her own financial affairs. She did not understand what was happening around her, and she did not even recognize her own son. Her son was the person who was helping us navigate things for her, and he was acting under a Power of Attorney that his mother had previously signed. This is exactly the kind of situation for which a Power of Attorney exists.

When someone is competent, they can sign a Power of Attorney naming another person to act on their behalf. Then, if that person later becomes incapacitated and cannot manage their own finances, the agent can step in and handle those financial matters. That's the entire point. You do the planning while you can, so somebody else can help you when you can't. And that is precisely what had happened here.

Her son contacted us because he was trying to cash in an account that was in his mother's name. The account had approximately $14,000 in it. Again, not nothing, but also not some gigantic, complicated account. The financial institution, however, was giving him a hard time. And eventually we learned why. They wanted Mom to sign their own Power of Attorney form. Now, stop and think about that for a second. Mom had advanced dementia. Mom was not competent to execute a new Power of Attorney. Mom did not even know who her son was. And the financial institution was saying, essentially, "We need Mom to sign our form."

Well, no. That is not how this works. The entire reason her son was using the existing Power of Attorney was because Mom could no longer manage these things herself. Asking her to sign a silly form at that point completely defeated the purpose of having the Power of Attorney in the first place. So, we explained that to the financial institution. We provided the Power of Attorney. We explained that Mom was incapacitated. We explained that she should not be signing a new document. And we asked them to recognize the authority that had already been granted to her son. …and they said no.

So we did what lawyers sometimes do when we are trying very hard to be polite: we kept talking. There were conversations with different representatives. Then other representatives. Then managers. We explained the situation again. We provided documentation. We explained why Mom could not sign their form and why the existing Power of Attorney should be honored. And they continued to stand their ground. They wanted Mom to sign their form. Period.

This is where I think there is a really important lesson for families, because I hear versions of this story all the time. People assume that once they have a Power of Attorney, the hard part is over. They think, "Great. Mom signed a Power of Attorney. Now my brother can go to the bank and take care of things." Well...sometimes. The reality is that financial institutions can have their own internal procedures for reviewing Powers of Attorney. They may have questions. They may want to verify that the principal is still living. They may have concerns about fraud or financial exploitation. They may want additional documentation. Frankly, there are legitimate reasons for a financial institution to be cautious when somebody walks in and says, "I'm now in charge of this person's money."

So I'm not suggesting that every bank or financial institution should blindly accept every Power of Attorney that gets shoved across a counter. But there is a very important distinction between reasonably reviewing a Power of Attorney and simply refusing to recognize a valid Power of Attorney because the document is not the institution's form. Those are two very different things. And in this particular situation, the institution was not saying, "We have a legitimate question about whether this Power of Attorney is valid." They were saying, "We want Mom to sign our form." Except Mom couldn't. At least, shouldn’t. That was the problem.

Eventually, after multiple conversations went nowhere, the client's son was understandably furious. And, honestly, so were we. Because at this point, it was not just about $14,000 anymore. It was about the principle. This woman had done what she was supposed to do. While she was competent, she executed a Power of Attorney. She chose her son to act for her. Then she developed dementia, and when she needed that Power of Attorney, the institution refused to recognize it.

Fortunately, my state, Indiana, has a statute that specifically addresses this kind of situation. It is Indiana Code 30-5-9-9, which is titled "Persons Refusing to Accept Authority of Attorney in Fact." (And I am sure many other states have similar statutes, too.) Anyway, this is one of those statutes that I wish more people knew existed. The basic concept is that if somebody refuses to accept the authority of an attorney-in-fact—the person we commonly call an agent—under a Power of Attorney, there can be consequences for that refusal. The statute provides a mechanism for dealing with an institution that improperly refuses to accept the agent's authority. Importantly, this is not just some vague statement saying, "Banks should probably be nice and accept Powers of Attorney."

There is an actual statutory remedy. So we sat down with the client's son and explained what our options were. We told him that, based on the circumstances, we could pursue the matter under Indiana's statute. That meant taking the issue to court. He said, "Let's do it." So we did. We filed a lawsuit against the financial institution. We agreed to do it pro bono … again, we were all annoyed and frustrated and I did not want this family harmed any more. So, I do not want any trolls saying, “It cost more for the family to do this than the account’s value!”

Now, I want to pause here because there is a part of this story that still makes me laugh. We had spent all of this time trying to resolve the issue. We had talked to representatives. And  managers. We had explained the situation. We had provided the documentation. We had tried to get somebody to simply look at the problem and say, "Oh, yes. This is a valid Power of Attorney. The son is the agent. Let's get this resolved." Nope. Apparently though, filing a lawsuit was the magic phrase. Because after we filed, we received a call from the institution's Chief Counsel. And he said something along the lines of, "Ms. Rozelle, I'm not sure how we got to this point, but we'll get things resolved."

And in my head I thought, "Oh, I know exactly how we got here." But, you know, professionalism. So instead, I essentially said, "Wonderful. Let's get this resolved." And they did. Rather quickly, may I add. The financial institution ultimately paid the balance of the account, plus a little bit more for damages. We made the argument that our client had been harmed by what had happened and that she was entitled to damages. So, in the end, the client got her money, and then some. Yes, I suppose you could call that a happy ending, but here's the thing: I don't actually consider this a particularly satisfying story because we "won" a lawsuit.

I consider it a satisfying story because the client eventually got what she should have been able to get in the first place. The lawsuit should not have been necessary. That is the part of the story that I really want people to remember. The fact that a financial institution eventually did the right thing does not erase the fact that this family had to spend time, money, energy and emotional bandwidth dealing with a completely unnecessary problem. Think about the situation from the family's perspective. You've got a mother with advanced dementia. You're already dealing with the emotional and practical realities of that. You're trying to manage her finances. You're trying to make sure bills get paid. Then somebody at a financial institution tells you that Mom needs to sign a new Power of Attorney. Except Mom can't. That's incredibly frustrating.

It's also one of the reasons I tell people that estate planning is not just about signing documents. Sure, we can talk about the documents. About Wills. About Trusts. About POAs. About healthcare documents. But the documents are only one piece of the puzzle. You also have to think about implementation. You have to think about what happens when the plan actually needs to be used. A Power of Attorney is a perfect example. The whole point of a Power of Attorney is that you are giving somebody else legal authority to act for you. But if that person eventually has to use the Power of Attorney, there may be a financial institution, insurance company, government agency, title company or other organization sitting on the other side of the transaction.

And that organization may have questions. So what can you do about it? First, make sure you actually have a Power of Attorney, for starters. I know that sounds ridiculously basic, but you would be surprised how many families come to us after somebody has already lost capacity and say, "We need to get a Power of Attorney." And sometimes the answer is: you can't. If somebody no longer has the legal capacity to execute the document, you generally cannot just have them sign one because you need one. That's not how things work.

Second, also understand that a Power of Attorney does not necessarily mean every institution will immediately say, "Fantastic! Come on in!" There can be a review process. Sometimes that review is completely reasonable. If a financial institution tells your agent, "We need a copy of the Power of Attorney," that's not necessarily a red flag. If they say, "We need identification," or "We need to verify certain information," again, that's not necessarily unreasonable. Financial institutions have legitimate concerns about fraud and exploitation. They have an obligation to protect their customers and to make sure that someone isn't improperly taking control of another person's money. But if the institution is simply saying, "We don't like your Power of Attorney because it's not our form," that's when I would want you to slow down and figure out exactly what is happening.

Ask questions. Ask them to explain why they are refusing to accept it. Ask whether there is additional documentation they need. Don't just walk away from the phone call angry and assume the situation is hopeless because sometimes the first person you talk to simply doesn't know. That's actually another important lesson from this story: the person telling you "no" may not actually be the person who has the authority to make that decision. In our case, we went through multiple people before eventually getting to the people who mattered. Ultimately, we got to the Chief Counsel after filing suit. Now, I obviously hope nobody listening to this has to file a lawsuit against a financial institution over their parent's $14,000 account.

That is not my recommended first step. At all! My recommendation is to know your rights before you need them. In Indiana, we have Indiana Code 30-5-9-9. If you're listening from another state, I would encourage you to find out whether your state has a similar statute. This is where having a relationship with an estate planning attorney can be particularly valuable. If your agent runs into a problem after you become incapacitated, you don't want your family Googling "What do I do when a bank won't accept Power of Attorney?" at 11:30 on a Tuesday night while they're simultaneously trying to figure out how to pay your bills.

You want somebody who can look at the situation and say, "Okay. Let's figure out exactly why they're refusing it, whether the refusal is legitimate, and what options we have." Because, unfortunately, these problems still happen. In fact, I continue to hear stories about banks and other financial institutions being difficult about Powers of Attorney. Sometimes the institution has a legitimate concern. Sometimes there is a problem with the document. Sometimes the agent has not  provided everything the institution needs. And sometimes, frankly, the institution is just being difficult. The important thing is knowing which situation you're dealing with.

And I think there's another broader lesson here about estate planning: don't make your plan based on the assumption that everything will go perfectly. Good estate planning is not just about deciding what you want to happen when everything goes according to plan. It's also about building a plan that gives your family tools when things don't go according to plan. And that's why I still tell this story.  So, if you have a parent, spouse, grandparent or other loved one who may eventually need somebody else to help manage their finances, find out whether they have a valid Power of Attorney. And if they don't, do not wait until they are incapacitated to address it. If they do have one, know where it is. Know who the agent is. And make sure the agent knows what they are supposed to do.

And if the agent encounters resistance from a financial institution, do not assume that "the bank said no" means the bank gets the final word. Find out why. And, if necessary, find out what legal protections your state provides. Because your loved one should not have to sign a Power of Attorney form after they've already become incapacitated just because a financial institution prefers its own paperwork. That defeats the entire purpose of having the Power of Attorney in the first place.

And that, Legal Tea Listeners, is the story of the time we sued a well-known financial institution over a $14,000 account. It started with a son trying to access his mother's money under a Power of Attorney. It ended with a lawsuit, a call from the institution's Chief Counsel, the account being paid out, and a little extra money for the trouble. And, most importantly, it ended with the client getting access to her own money through the person she had chosen to help her. The lesson isn't "go sue your bank." The lesson is: know what your estate documents are supposed to do, understand the rights those documents give your family, and know what tools are available if somebody refuses to recognize them.

Alrighty, let’s shift to a sneak peak of next week, which we’re circling back to the “current trends” topic where we talk about things that are going on currently that impact my estate and elder law world – or maybe, things that I have stumbled upon on the news or social media that are relevant to this podcast. Next week’s topic is admittedly a little bit of a stretch when it comes to calling it a “current trend.” But someone recently asked me to talk about my non-traditional journey through law school and into the legal profession, and I decided that’s close enough for me to put it in the “current trends” bucket. Honestly, I think there IS a bigger trend here worth talking about. We’re seeing more and more people take unconventional paths through education and into their careers. The traditional idea of what it means to go to law school, build a legal career, and eventually run a law firm looks a lot different than it did even a couple of decades ago. So, I’m going to take that broader trend and use it as an excuse to tell you a little bit about how I ended up where I am today — which, spoiler alert, was definitely not some perfectly mapped-out master plan. So, next week, we’re going to take a little detour from estate planning and elder law and talk about career paths, taking the road less traveled, and how sometimes the path you actually end up taking looks nothing like the one you thought you were going to take. So that’s what next week is on, Legal Tea Listeners. Talk soon and take care!

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