Banks and the Proper Use of Powers of Attorney

LAW OFFICE OF GEORGE F. DICKERMAN

3879 Brockton Avenue
Riverside, California USA 92501
Tele: (951) 788-2156
Fax: (951) 788-0906

Elder Law Newsletter

A primary purpose in executing a power of attorney for financial matters, is to grant an “agent” (attorney-in-fact) the authority to conduct banking transactions if, and when, the elder (principal) is no longer able. However, sometimes a bank employee has a problem with recognizing the validity of the power of attorney. They hand the agent the bank’s own power of attorney form, and instruct the agent to have the elder’s signature notarized on it. Hmmm …

First, some clarification. Most powers of attorney are called “springing powers”. That term may not actually be included in the document itself, but the language of the document states that the power is effective only if the elder becomes mentally incapacitated and unable to make sound financial decisions. Most powers of attorney require the written declaration, under penalty of perjury, of at least one qualified medical doctor who states - for example: “The elder is my patient, she suffers from A, B, and C, and as a result, is no longer able to make sound financial decisions.”

The doctor’s declaration can then be stapled to the back of the power of attorney and has now “sprung” into being, so to speak.

Contrast that with a power of attorney that becomes effective immediately - without regard to incapacity (i.e., not a “springing power”). These should seldom be used. This immediate power of attorney may also state that, even if the elder becomes incapacitated, the authority will continue. This is known as a “durable” power of attorney.

Now back to the problem with the bank.

The purpose of the power of attorney was to have it executed by the elder while s/he still had the mental capacity to do so - that is, the ability to understand that by signing such a document, they were giving their financial authority to their agent in case of the elder’s subsequent incapacity. Now, when the elder is incapacitated, the bank says the original power of attorney is no good.

California Probate Code Section 4300, et seq., govern the use and authority of these financial powers of attorney. A third person (i.e., bank)must give an attorney-in-fact acting pursuant to a valid power of attorney the same rights and privileges that would be given the principal (elder) if the principal were personally present and able to act.

Of course, the bank wants to protect both itself and its elderly client from any improper use of the power of attorney by the agent. In so doing, the bank may first request that the agent provide proper identification, and even samples of signatures of both the agent and elder (principal) to confirm the identity of both. If the bank made this request, it would require that the agent locate other documents that contained the elder’s signature and present those to the bank as further evidence. The bank can also require the agent to provide the current and permanent residence addresses of the elder before agreeing to honor the power of attorney - and agree to transact any banking business with the agent.

The bank will not be held liable for relying, in good faith, upon the validity of a power of attorney so long as the following conditions are met:

1. The power of attorney is presented to the bank by the agent.

2. The power of attorney appears on its face to be valid.

3. The power of attorney includes a valid notary public’s certificate of acknowledgment or is signed by two witnesses.

If, after all this, the bank still refuses to honor the power of attorney, then the recourse is to petition the court and obtain an order that confirms the validity of the document and the agent’s authority.

Testamentary Capacity

George F. Dickerman, Esq.
3879 Brockton Avenue
Riverside, California, USA 92501
(951) 788-2156

Elder Law Newsletter

In California, anyone who is at least 18 years old and of sound mind can make a will. However, the term “sound mind” means having testamentary capacity, and the law describes this as being “mentally competent”.

Mental competency means that, at the time the will was signed, the “testator” (person signing the will) was able to do all of the following:

(1) Understand the nature of the testamentary act. That is, they knew that they were giving specific instructions on who their beneficiaries would be and what property (real or personal) the beneficiaries would receive.

(2) Understand and recollect the nature and situation of their property. Did they know what their estate consisted of? A house? A bank account? Some stock certificates? They need not know, for example, the actual bank account numbers, or even the total number of accounts they have. But they must know that they have bank accounts, and a general understanding of the assets that make up their estate at the time the will is signed.

(3) Understand who their close relatives are and how they will be affected by the will. If the person cannot remember that s/he is married, or has children, then the will is likely to be determined invalid, because only a mentally incompetent testator could have forgotten that such relationships existed.

(4) The testator must not suffer from a mental disorder. This includes hallucinations or delusions that result in the testator leaving property to individuals or entities that, absent any such delusions, s/he would never have done.

An example would be where the testator suffered from a delusion that he was being visited by ghosts every night and believed that the only way to stop the haunting would be to name a paranormal group (like the ghostbusters) as a major beneficiary to the will.

Other circumstances exist, however, that would allow a will to be made even though a person has been declared mentally incompetent.

In a conservatorship (http://www.elder-law-advocate.com/conservatorships) case, where the court has appointed a conservator, a will can be executed on behalf of the conservatee. However, for the will to be valid, the conservator would have to first petition the court and obtain a court order for such authorization.

From the above rules, you can see that testamentary capacity is not a high bar to hurdle. When issues such as hallucinations and delusions appear, then a will may be challenged through a procedure known as a will contest ( http://www.elder-law-advocate.com/wills/will-contests).