Financial institutions are right to be concerned about fraud, especially when a power of attorney is involved.
That is because a power of attorney is a tremendously powerful document that gives another person authority to act on one’s behalf. The grantee of the power of attorney gains the almost complete ability to manage the grantor’s financial affairs, and so banks need to be vigilant about ensuring that person is indeed authorized and fit to carry out such a responsibility in the interests of the individual.
Banks can refuse to accept powers of attorney for a number of reasons: the document may be too old, lack clarity, or fail to conform to a bank’s internal policies.
But in a few recent incidents I have come across, it appears as though common sense has taken a backseat to unnecessary caution.
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For example, I was recently involved in a matter where a financial institution received a power of attorney under what they considered suspicious circumstances. To satisfy their own doubt, they asked that the individual who granted it get a capacity assessment. This test was undertaken to ensure that the individual was still mentally capable of signing a power of attorney, a requirement for such a document to be valid. But even though the individual passed the assessment, the financial institution still rejected the document, under threat from other family members.
Rejected powers of attorney can cause huge problems. They can leave an individual’s affairs in limbo and there may be no obvious way to resolve the issue.
They also raise important questions: At what point does the fear surrounding potential fraud (and ensuing litigation) go too far? Have we become so “risk-averse” that common sense no longer applies?
And, most importantly, what can be done beforehand to ensure that the interests of a grantor are fully advanced?
Candice Jay, vice-president at Pembroke Private Wealth Management, deals with powers of attorney frequently when it comes to her clients.
Candice explained that the best way she and her colleagues at Pembroke prevent confusion is a combination of education and preparation. The education consists of regular learning sessions about signs of fraud and other suspicious activity. The preparation consists of frequent meetings and interactions with the individual, so that there is no confusion about their particular circumstances. Ideally, she says, given the knowledge acquired, the presentation of a new power of attorney document should come as no surprise to her company.
But what about a bank, where an individual may have a single chequing or savings account? The prevalence of online and ATM banking has changed things significantly. Trips to the bank and personal relationships with tellers or branch managers are becoming things of the past.
In light of all of this, how do we prevent disputes about powers of attorney?
The first level of responsibility falls on the individual and the family. Powers of attorney are more effective when prepared early, and when there is no question as to capacity. Waiting too long creates uncertainty.
Lawyers should also encourage early drafting of powers of attorney. This way, if there is a problem identified by the bank, or by an advisor, there is time to fix it.
Lawyers also have to keep in mind that there may be pushback from banks or professionals worried about getting sued. It may be helpful to speak to those banks or professionals when drafting. It’s always better to address those particular concerns on the front end than on the back.
The next level of responsibility falls on the professionals. It’s time for common sense to make a comeback. Banks, financial advisors, and anyone acting on instructions from an attorney must be reasonable and flexible — to an extent.
Consider the case of a contact of mine, who was acting as one of two joint powers of attorney for an individual, with the other power of attorney being located across the country. Certainly not ideal, but this was the reality. The first power of attorney could not conduct any business for the individual, because the bank would not accept anything without two signatures, both provided in person.
With the rise of technology (video calling, electronic signatures, and so on), a bit of creative thinking should be enough to reach a solution. The alternative — requiring the second power of attorney to attend in a bank branch — can be hugely problematic.
Banks and advisors should also be prepared to accept the representation of a lawyer, a doctor, or designated capacity assessor. If a professional is willing to put their reputation on the line, should banks not accept their finding?
There is a balance between protection for the public, and for ensuring that real, legitimate powers of attorney are respected. All we have to do is find it.
Matthew Urback is a lawyer at Shibley Righton LLP, with a focus on estate litigation, wills and trusts.