Confused about the rules and restrictions on your right as a Power of Attorney (POA)?
You’re not alone.
Many people confuse a POA with a will and assume that a will includes the power of attorney. However, this is incorrect and can cause issues and legal costs.
In this article we cover:
· The definition of a POA
· The different types of POA
· Whether a POA can deposit a check to themselves
· Whether banks can reject a POA check
· Limits of POA transfers
· And more…
What exactly is a POA?
Let’s start by being clear on what a POA is, and what it isn’t. A POA is a legal document that gives one person (called a donor) the power to make important financial and welfare decisions on their behalf to another person (called the attorney).
A POA can basically manage someone else’s money or property if they become unable to do some themselves.
Different types of POA
Different types of POA give the attorney holder different levels of power. For example, some attorneys are only allowed to make financial decisions whereas others can take control of finances and healthcare decisions.
· Property and financial matters POA – allows an attorney to make decisions about paying bills, and managing a bank account and financial assets such as properties.
· Health and welfare POA – gives powers to make decisions around day-to-day care and medical treatment.
· Business POA – responsible for ensuring a donor’s business continues to operate. Responsibilities include fulfilling contracts, hiring staff, and managing the payroll.
Some states may require the validity of a POA to be reviewed regularly. This is to ensure that the donor still needs the attorney to act in their best interest. Lasting POA status is given to attorneys when the donor no longer has the mental capacity to have a say in their financial and wellbeing matters. If Lasting POA is approved, the attorney will be granted rights and responsibilities for an unlimited period.
Can more than one person hold POA?
Yes, it’s possible to split the decision-making between multiple attorneys. However, it’s important to choose people that won’t end up disagreeing or arguing over financial or wellbeing decisions that need to be made. If an attorney decides they no longer want the responsibilities that come with being a POA, they can’t transfer the responsibilities to somebody else without the donor’s authorization first.
Benefits and disadvantages of POA
A POA can give individuals the peace of mind that a trusted person is in charge of their affairs. But there are a few downsides to consider too.
Advantages include:
Prevents a court, guardianship, or conservatorship from making decisions on your behalf
Without a power of attorney, an independent agent such as a guardianship or conservatorship to make financial and wellbeing decisions. This can be extremely expensive, leaving individuals or family members with large legal bills.
Stops delays in asset protection planning
Individuals want to protect the assets that they have worked hard for by ensuring family members will benefit from them if they become mentally or physically unable to do so. The purpose of asset protection is to safeguard assets and prevent them from being handed over to businesses or corporations rather than loved ones. Asset protection planning typically applies to property, vehicles, and businesses.
Gives peace of mind to individuals and family members
The majority of people decide to hand over their financial matters to a POA to reassure them that their family will be financially secure. It also prevents families from having to pay expensive legal fees to access money from an immediate family member.
Protects vulnerable people from fraud
Fraudsters target people who are unable to make their own financial decisions, putting your family and friends at risk of fraud. A POA can help to protect individuals by taking the responsibility of important financial decisions away from them.
Disadvantages to consider are:
It’s possible to make mistakes in the creation of a POA
A POA needs to be extremely clear on what type of power you’re giving to an individual. There have been cases where people think they have someone to act for them but in reality, they don’t. It’s important to get legal advice when creating a POA so both parties are clear on what the document allows and the restrictions involved.
A POA doesn’t state what will happen to assets after a death
POAs become void at the point of the donor’s death. Therefore, your POA will no longer be able to decide what happens to your wealth and assets. This is the reason why it’s important to have a will in place too.
Abuse of power
A donor needs to be able to trust that their POA nominee will act in their best interests, rather than use their finances or assets to benefit themselves. If it is believed that a POA is abusing their power, legal action can be taken but this often takes time and can be a costly process for other family members.
Lack of recognition
Certain organizations have their standards, which means a POA may not be taken into account. It’s important to check all of these details with a legal professional before both parties sign a POA document.
How do you create a POA?
Depending on the state you live in, there are minimal costs involved with creating a legal POA document. Here’s what you need to do:
1. The first thing to do is choose somebody that you trust to handle your financial affairs if you are in a position where you’re unable to. You can choose anybody as long as they are over 18 years old.
2. Next, decide how much power you want to give your POA. For example, do you want your nominee to handle only financial matters or medical decisions too?
3. There are POA templates online that you can use to draft a document that states the commitment from both parties.
4. Hire a licensed attorney to make the document official and legally binding. Both parties will need to sign the document and each party will be required to keep a copy for their records. In some states, banks or financial institutions may also ask to keep a copy of the legal documents.
It can take up to 10 weeks for a POA to be registered. If there are any issues on the form, this may take longer.
Can a POA deposit a check to themselves?
In short, yes but the power of attorney document must state that you have the financial authority to do so and you will need to follow the bank’s procedure.
As with all other financial decisions that an attorney makes, it must be proven that depositing a check to themselves is within the best interests of the donor.
So, can an attorney pay themselves? Unless a court has agreed, POAs can’t pay themselves or another family member using the donor’s money for the services and responsibilities required of a POA or care. The only exception would be if the terms are agreed upon in the legal attorney documents.
States have laws to prevent abuse of trust for personal gain, which is an act of fraud.
Can a POA borrow money from the donor?
No. It’s unlikely that any court would agree that an attorney borrowing money is in the best interests of the donor.
Does POA have the right to access bank accounts?
A donor can give their chosen attorney the authority to operate a checking account or handle investments but the POA document must clearly state this.
Typical duties of a POA include paying bills, withdrawing cash, managing standing order payments, and managing mortgage payments.
How can a POA access someone else’s money?
Once you have POA responsibilities you must act in accordance with the POA document to access funds by:
Branch – attorneys can make a payment or manage standing orders in a bank’s branch. Can an attorney transfer money on behalf of the donor? Yes, in a bank’s branch.
Cash machine – if the donor is unable to manage their own finances, some banks will provide a card for the POA. This means they can then make cash withdrawals at ATMs.
Online – it is possible to make online transactions for somebody as a POA, however, there are restrictions and rules that must be followed. Each bank will have its own policy.
Are there limits on POA transfers?
The legal POA document should outline any limitations on transfers. A donor can put limitations in place to restrict how much money they can access or which assets they can deal with.
Can a bank reject a POA check?
Yes, it’s possible that a bank can refuse to honor a POA if the legal document has not been executed properly or lacks clarity on your rights.
So, what should you do if the bank refuses your POA?
First, call the bank’s Office of Ombudsman to try to resolve the issue. If this fails, seek legal advice from a lawyer.
Some banks also have internal policies that may conflict with POA documents. Always check with the donor’s bank regarding any internal documents that may need signing in addition to a POA document to prevent problems in the future when the attorney needs to access money.
To avoid any potential future problems, ask to speak to the bank to discuss a POA and ask them to check that they are happy with the document and address any questions regarding capacity.
Can POA give money to family members?
Yes, an attorney that has the correct level of durable power to make decisions regarding a donor’s financial matters can make monetary gifts to others on behalf of the donor. Gifts should only ever be made in the best interests of the donor and must comply with the donor’s financial and well-being needs.
When it comes to POAs, a gift isn’t giving money to someone for their birthday or Christmas. It must meet the following criteria to be considered a gift.
· Charity donations.
· Educational fees.
· Creating a Trust.
· Gifting an interest-free loan to someone.
In some states, attorneys must apply to a court before giving donations or gifts.
Are there any decisions that you can’t give to a POA?
It is against the law to give a POA power to:
· Act in any way that is against the law.
· Take away your liberty without a court order.
· Make any decisions that conflict with your guardian, if you live under guardianship.
· Go against any treatment refusals that you have set out in advance of a POA.
Can you make changes to a POA document?
Only the individual that gave the power of attorney to somebody else can revoke their rights unless the donor is physically or mentally unable to. In this case, a court will make the decision on the donor’s behalf.
If the donor’s circumstances have changed or wishes to amend the terms of a POA, they can cancel it and create a new document that outlines the new terms. If a POA is canceled it’s important to let banks know so that they can remove the rights of a POA and prevent them from accessing bank accounts in the future.
Can you refuse to be a POA?
Not everyone has what it takes to be a power of attorney. It’s a huge responsibility that can become quite complicated, especially when other family members are involved.
It’s best to be honest with the donor and explain your concerns and worries about being a POA. The donor will want their attorney to be comfortable making financial and wellbeing decisions and will appreciate you telling them that it’s not something you want to do.
The rights and responsibilities of a POA
We hope this article has helped to clear up some of the common confusion around POAs and their restrictions.
Whether you’re an attorney supporting somebody vulnerable or a donor handing over the responsibility to deal with your financial matters, it’s important that you seek legal advice to ensure both parties understand their rights and restrictions.
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