When baby boomers come knocking at the financial advisor’s door with a power of attorney in hand, the advisor should peruse the POA document very carefully and also the boomer’s ID, say financial experts.
If something doesn’t seem right or if the transaction could create grief for loved ones, be prepared not to participate in the transaction, says Jerry Bateman, owner of Financial Coaching Inc., Oviedo, Fla.
“With identity theft issues today, you can’t be too careful,” says the planner. “And you don’t want to end up in the middle of a fight” with family members and other interested parties.
The subject comes up because more and more people today hold POA documents for their parents, relatives and even friends. This is an outgrowth of financial professionals’ decades-long campaign to get consumers to set up POA documents along with wills and other planning documents. The result is that advisors in insurance, banking and securities need to bone up on how to work with POA-initiated transactions.
A POA document designates another adult to handle various personal assets on behalf of a grantor who is still alive. (A successor trustee can do this for assets inside trusts.) The POA’s power can end at the grantor’s death–or before, if the document so specifies or if the grantor revokes the document. The main types of POA documents are shown in the box.
In a financial practice, boomers might use POA documents to liquidate accounts, transfer funds, make policy loans or even set up an annuity or purchase insurance, all on behalf of the grantor.
“You need to be sure the person you are talking with is the person named in the POA document and that the transaction being requested is permitted by the terms of the document,” says Bateman.
“Even if the grantor meant the POA to have total control over his/her accounts and dealings, the advisor should still review the document,” says Heather Downey, a partner in the Birmingham, Ala., law firm of Friedman & Downey, PC.
Her reason: “The potential for rip-off is there. Also, the potential heirs and the next of kin may object to what the POA is doing. They may challenge the POA’s decision to move some money, for example. They may go to court to challenge the POA document itself, or they may charge that some action is not in compliance with the terms of the document.”
The basis of such challenges is that the POA serves in a fiduciary capacity, says Sally Mulhern, an estate planner and partner in Mulhern & Scott, Portsmouth, N.H. “If the POA has done something illegal, the POA can be sued for breach of fiduciary responsibility,” she says. “The same is true if POAs do something in their own self-interest or to benefit themselves.”
Unfortunately, she adds, such things do happen. “I know of six cases where this has occurred. A family member or caregiver endears him- or herself to the person and then takes advantage” via the POA.
This is a boomer issue, adds Downey, because “it’s almost always boomers who have these powers.” The 20- or 30-somethings still are dealing with getting started in adult life or they have young families, so they are not named as often to be POAs, she says.
“If the boomer is under financial stress, such as needing to find money to pay for a child’s college education, and if the boomer has the POA, the temptation is there,” Downey warns.
Not everyone who shows up to move money or change beneficiaries is acting in self-interest, the experts emphasize, but it is the responsibility of the advisor to check it out first–just in case.
Bateman’s advice: “Do your due diligence on the document. Read it over. Talk to the attorney who facilitated the document, and talk to the family members, too, if they can be reached. Approach it as a team, with everybody informed and consulted.
“If something smells fishy, check it out first,” Bateman adds.
The same holds for financial companies–the insurers, banks and securities firms that process the transactions, Bateman says. “Companies have the same liabilities advisors do when working with boomers who have POAs.”
This applies even when the POA is from a known client and the boomer who holds it is also known, Bateman says.
Some people use so-called “statutory” powers of attorney, points out Raymond P. Donnelly, president and founder of Advisors Resource Group, LTD, Garden City, N.Y. These documents are boilerplate forms that people can buy. The forms can do the job, but Donnelly cautions that the statutory documents are “very limited in the powers they grant. The POA can’t do real estate transactions with them, for instance.”
He prefers to see people obtain “durable powers of attorney” that are customized by a lawyer to suit the grantor’s own needs and situation. Most POAs he sees are of this type. But customization means that one durable POA is usually different from another.
Therefore, advisors should check what powers each POA document actually allows, Donnelly says. “And be sure the one being shown includes the power to do the transaction being sought.”
There are layers to this scrutiny, he points out. For instance, if the POA and other documents are in good order, Donnelly executes the transaction and forwards the paperwork on to the financial company. “Then, another set of eyes looks at it.”
Donnelly says he has never had such a transaction turned down by a financial institution. But he knows that some institutions do have their own internal procedures and that some of those procedures can slow down a transaction, if not stop it altogether.
He cites this example: An attorney he knows was POA for an older client. The POA decided to deposit some of the grantor’s money into a branch of a bank where the attorney knew the branch president. But the transaction did not go through, Donnelly says, because the bank did not approve the POA document.
“The bank wanted the client to use the bank’s own POA document instead.”
Lesson learned: After taking the transaction to another bank, the attorney decided that, from now on, she will urge grantors and POAs to go to the bank together, Donnelly says. “She recommends showing the bank the existing POA document and also filling out the bank’s own POA document.”
Mulhern says attorneys and estate planners often know which financial institutions insist on using their own documents and/or which ones give POAs a hard time when attempting to negotiate transactions for the grantor. Often, she says, planners will encourage clients to move the money to more POA-friendly institutions.
Advisors should know that “there is no legal reason to deny a POA’s transaction request, unless state law has a reason or the language of the actual document does not allow it,” Mulhern adds. This is assuming that all the due diligence has been done–such as seeing the original or certified copy of the POA document, obtaining verification of the POA’s identity, etc.
Some institutions will reject a POA document because it is old, she notes.
Technically, a POA is never out of date, she continues. But the institution may want to be sure the information is current or that a newer version does not exist. A request for a newer POA is “counter-intuitive to the reason why people do these documents in the first place, but it happens,” she says.
Should such a request occur, Mulhern recommends the advisor “get on the phone and talk to the institution’s legal department.” Also, contact the attorney to find out whether a newer version exists, she says, “but get the client’s or POA’s consent to make that contact.”
Other institutions may reject a POA because its language is not specific enough for the transaction, adds Downey. “If that happens when the client is incompetent and the money needed, the POA will have to go to court for a declaration of incompetency and conservatorship; then the boomer could become a state-appointed POA.”
Another tip: If the grantor is still competent, the advisor should work with that person, says Mulhern. If the grantor says it is OK to work with his POA instead, “get that in writing–e.g., ‘my POA can act on my behalf until I tell you otherwise’–before you do. Also obtain a certified copy of the POA document.”
A general rule to keep in mind, says Bateman, is that “nothing will happen in a few days. If the boomer POA can wait a week or two, it should be OK. But if not, that might raise questions.”