Why It Pays to Have a Carefully Drafted POA – Part 2

In my post last week I told you about a call we received from a family member serving as agent under power of attorney (POA) for a client of ours.  The son had been refused access to his mother’s individual retirement account  (IRA) account because the bank claimed that the POA did not specifically include the power to access such accounts.

Because financial institutions typically do not allow direct communication with their legal department I had to communicate through the local branch manager in order to resolve the issue.  I asked the manager to have its legal department to cite the specific statute that requires explicit reference in a POA to IRAs.  It could not.

The POA I drafted did make specific reference to the section of New Jersey’s POA statute covering bank accounts which are defined to include checking, savings and certificates of deposit (CD).  The account the agent was trying to access is a CD. It happens to be an IRA account but I pointed out to the manager that the statute does not distinguish between non-IRA and IRA CDs, therefore, the distinction is irrelevant here.

I also alerted the manager to another section of the law that outlines the limited grounds for refusing to honor a POA that provides the agent with banking powers as is contained our POA.  None of those grounds applied here.

Finally, I pointed out that a bank cannot be held liable for refusing to honor the POA if it acts in good faith but it must provide the reason for such refusal.  Since the bank could not provide any legitimate reason to support its position it could then be held liable for any injuries resulting from the denial of access.  For example, if the agent cannot gain access to the funds needed to pay the principal’s bills and incurs legal fees, the bank could be sued for having acted in bad faith.

In the end the bank relented and allowed my client’s son to gain access to the account.  The story illustrates the importance of having a carefully drafted POA.  I should also mention that this is not the first time we dealt with this particular scenario.  

Several years ago the same issue arose and we have since added a specific paragraph covering IRAs, 401ks and other retirement accounts to avoid these types of encounters.  We have also modified our POAs for other reasons over the years, which is why we advise clients that it is a good idea to at least have an attorney review their documents every 7 to 10 years to determine whether updating them is advisable.