PROBATE & PROPERTY � NOVEMBER/DECEMBER 2003 37

Durable powers of attorney have become an integralpart of personal estate planning. Many estate plansexecuted today include a durable power of attorney

that permits an authorized attorney-in-fact to act on behalfof an individual in handling personal, financial, and legalaffairs even after the individual is unable to do so becauseof legal incapacity.

When an estate planning attorney advises a client aboutoptions and issues to consider in the preparation of thepower of attorney document, the attorney may first consid-er with the client the appropriate person to act as attorney-in-fact, because this individual may have broad access andauthority over the client’s assets. A second consideration isthe range of authority that should be granted to the attor-ney-in-fact. For example, should the power to make gifts beincluded? To what extent should such gift-giving ability belimited? Should authority of the attorney-in-fact beginimmediately or only upon some future event?

Not as commonly considered are the third parties thatmay become involved in transactions with the named attor-

Daniel A. Wentworth is Senior Legal Counsel withFidelity Investments in Boston, Massachusetts.

Considering theFinancial Institution’s

PerspectiveBy Daniel A. Wentworth

Durable Powers of

Attorney

Ric

hard

Lau

rent

38 PROBATE & PROPERTY � NOVEMBER/DECEMBER 2003

ney-in-fact by presentation of thepower of attorney. This third partycould be a real estate purchaser or sell-er, a retirement plan administrator, orthe principal’s business operatives.Often the third party is a financial insti-tution, whether a bank, broker, or IRAcustodian, that is presented with apower of attorney document by anattorney-in-fact along with a requestthat such power be recognized. Thisarticle will examine durable powers ofattorney from the perspective of afinancial institution presented with thepower. It is intended to suggest toestate planners the importance of con-sidering the financial institution’s per-spective at the time that the power ofattorney is drafted to facilitate lateracceptance of the document.

The Ultimate Goal: Use thePower of Attorney for the Client’s

Benefit

When planning with powers of attor-ney, focusing solely on “who to name”as attorney-in-fact and “what powersto give” may not be enough. (In thisarticle, the individual executing thepower of attorney will be referred to asthe “principal” and the named agentwill be referred to as the “attorney-in-fact.”) Ultimately, the planner wants toassist the client in naming the right per-son, granting the right powers, andfacilitating later use of the power. If afinancial institution is unable to accom-modate the attorney-in-fact, has theclient been served in the most effectivemanner? Obviously, the planner cannotguarantee acceptance of a power ofattorney, and stories abound amongestate planners about the intransigenceof financial institutions regarding

power of attorney acceptance. Some ofthese stories are well founded and arean unfortunate result of financial insti-tutions that either may not havethought through their power of attor-ney acceptance policies or simply mis-understood acceptance policies in aparticular situation.

If a financial institution refuses toaccept a power of attorney documentin a particular instance, however, it isnot always the fault of the financialinstitution. In some cases, fault may liewith the attorney who did not considerparticular types of transactions oraccounts in drafting the power of attor-ney, or who used boilerplate languagethat does not work for the requestedtransaction. Ultimately a careful estateplanner will consider the selection ofthe attorney-in-fact, the scope of theattorney-in-fact’s authority, the particu-lar transactions that the principal mightwant the attorney-in-fact to make onthe principal’s behalf, the financialinstitutions likely to be relying on thedocument, and the nature of theaccounts owned by the principal tofacilitate document acceptance. By con-sidering the financial institution’s per-spective, a planner can help to makesure that when it is time to use the doc-ument, the client’s needs are advancedby the efficient recognition of thepower of attorney.

Risks Facing a FinancialInstitution in Acceptance of

Powers of Attorney

When considering power of attorneyacceptance from the financial institu-tion’s perspective, it is first worth abroad view of what the financial insti-tution sees when presented with apower of attorney.

“The Balancing Act”

A financial institution may receivecash, securities, or other assets from anindividual and hold these assets in anaccount registered in the name of theindividual. The financial institutionmay also have an account agreementgoverning the account that permits theaccount owner to exchange invest-ments, place securities trades, reinvestdividends, write checks, transfer assets,name beneficiaries, and conduct other

account transactions. The accountagreement typically recognizes that theaccount owner controls the account—thefinancial institution merely maintainscustody of the account for the owner.An attorney-in-fact who comes for-ward to the financial institution pre-senting a power of attorney documentis someone who is not the account owner, isentirely foreign to the account (and per-haps even foreign to the financial insti-tution), yet professes to have the authorityto access and control the owner’s entireaccount. Given this perspective, accountowners might find it entirely appropri-ate—and somewhat reassuring—for theinitial reaction of their financial institu-tion when approached by an attorney-in-fact to be one of hesitation andscrutiny. After all, in the usual case, theaccount owner places his or her assetswith the institution with the implicitunderstanding that only the accountowner will be able to access theaccount. Verifying the authority of theattorney-in-fact to act for the accountowner, therefore, is the first priority ofevery financial institution, and an estateplanning attorney must recognize (and,when working with attorneys-in-fact,should set the expectation) that this ini-tial reaction is appropriate.

Although a financial institution maybe justified in initial wariness of some-one wielding a power of attorney, theinstitution should also recognize thatits account owners have visited withestate planning attorneys and haveconveyed authority under these docu-ments so that a named attorney-in-factcan access their accounts. It is theaccount owner’s intent that the finan-cial institution recognize the attorney-in-fact. So, on the one hand, someonewho is not the financial institution’scustomer is asking for access to its cus-tomer’s assets, but, on the other hand,the customer may have planned aheadso that this could happen. It is this ten-sion that makes the acceptance of pow-ers of attorney such a difficult balanc-ing act for a financial institution.

Specific Risks When ConsideringAcceptance of a Power of

Attorney

With this backdrop, this section willdetail some specific risks facing a finan-

Verifying theauthority of the

attorney-in-fact toact for the accountowner is the firstpriority of every

financial institution.

PROBATE & PROPERTY � NOVEMBER/DECEMBER 2003 39

cial institution presented with a powerof attorney. Consideration of these risksfrom the institution’s perspective mayhelp the planner facilitate acceptance ofthe document.

Fraud

Remembering that the attorney-in-factcoming forward is not the financialinstitution’s customer and that theattorney-in-fact’s access to the accountcan be very broad, the financial institu-tion first needs to be concerned aboutthe risk of fraud.

Laws in many states offer minimalprotections for a financial institutionconsidering acceptance or rejection of apower of attorney document presentedto it that may be fraudulent. An exam-ple of this risk is presented in a 1994Illinois state court opinion, In re Estateof Davis, 632 N.E.2d 64 (Ill. App. Ct.1994). In Davis, Citicorp Savings Bank(Citibank) was presented with a forgedpower of attorney that appeared tohave been executed by the bank’s cus-tomer, Mrs. Davis, naming her nephewas attorney-in-fact. Citibank relied onthe forged document and allowed thenephew to access Mrs. Davis’s account.He subsequently withdrew all of theaccount’s assets. When Mrs. Davis’sguardian later discovered the with-drawals, she brought an action againstCitibank for breach of contract, negli-gence, and breach of fiduciary duty forpermitting the unauthorized with-drawals. Citibank defended itself byrelying on Section 802–8 of the IllinoisPower of Attorney Act, which provid-ed at the time that: “Any person whoacts in good faith reliance on a copy ofthe agency will be fully protected andreleased to the same extent as thoughthe reliant had dealt directly with theprincipal as a fully-competent person.”Id. at 66.

The Illinois circuit court enteredjudgment against Citibank for theentire loss. On appeal, the appellatecourt held that Citibank was entitled tono protection under Section 802–8 ofthe Act when it relied on a forgedpower of attorney. This was true eventhough Citibank had actually receivedand relied on an original of the docu-ment. The court reasoned that whenthe power of attorney document was

fraudulent, no agency was ever creat-ed, and “[i]n order to claim good faithreliance on an agency, an agency, asdefined by the Act, must first exist.” Id.at 66. It should be noted that the gov-erning Illinois power of attorneystatute has since been modified to pro-tect a financial institution if it relies ona “copy of a document purporting toestablish an agency.” 755 ILL. COMP.STAT. 45/2-8 (2003). This new languageshould assist Illinois financial institu-tions and give them greater protectionagainst the risk of fraud when consid-ering acceptance of a power of attor-ney. But, while some states offer protec-tion if a power appears valid on itsface, other jurisdictions still maintainlanguage in power of attorney statutessimilar to the Illinois statute interpretedin Davis. As state laws may not protectagainst the risk of accepting a fraudu-lent document, a financial institutionmust protect itself through its ownacceptance procedures. It may be rea-sonable to deny recognition of a powerof attorney when the execution circum-stances appear questionable.

Revocation of the Power ofAttorney Document

A second risk facing the financial insti-tution is that it may be presented with

a power of attorney that has beenrevoked. Revocation of the attorney-in-fact’s authority may occur throughdeath of the principal, through incapac-ity of the principal (if the power ofattorney was not durable), by expressrevocation by the principal, or throughstate statutes that revoke an attorney-in-fact’s authority through operation oflaw (such as when a guardian isappointed). Although some revocationsmay not apply to acts permitted by thefinancial institution if it acts withoutknowledge of the revocation, a finan-

cial institution does not want to imperilthe assets of its customer by acceptingan agency document that no longerreflects its customer’s intent.

Some financial institutions take theposition that the passage of time alonemay revoke the attorney-in-fact’sauthority. What may be surprising tosome planners is that agency law, insome circumstances, does raise the pos-sibility that the passage of time couldrevoke an agent’s authority, dependingon the principal’s intent. RESTATEMENT

(SECOND) OF AGENCY § 38. But becausemany powers of attorney are intendedto be operational only at some futuretime, it would seem that “staleness”alone should not cause revocation of anattorney-in-fact’s authority.

Risk That the Attorney-in-Fact WillExceed the Authority Granted in thePower of Attorney Document

The law of agency provides that a thirdparty relying on an agent’s powers ischarged with knowing the extent of theagent’s powers and is charged withenforcing any limitations on thosepowers. RESTATEMENT (SECOND) OF

AGENCY § 311. Two federal districtcourt opinions dealing with the samefacts, Grabowski v. Bank of Boston, 997F. Supp. 111 (D. Mass. 1997), 997 F.Supp. 130 (D. Mass. 1998), highlight thedangers to a financial institution thatlurk in a power of attorney document.In Grabowski, the plaintiffs were deposi-tors of Bank of Boston (the Bank),which had executed powers of attor-ney naming Mr. Epstein as an attorney-in-fact. The powers of attorney con-tained a provision that each applied toan account at the Bank that was “solelyfor the buying and selling of PrimeBank Instruments of Credit. [The]Account at all time shall contain cashand/or Prime Bank Instruments ofCredit . . . in an amount of not less thanthe initial cash deposited.” Id. at 116.

The Bank had established depositagreements with the plaintiffs that stat-ed that the Bank would act accordingto the plaintiffs’ instructions. The Bankhad also accepted the powers of attor-ney on the plaintiffs’ accounts andmaintained copies of them.Mr. Epstein, acting under the authorityin the powers of attorney, withdrew

A financialinstitution must

protect itself throughits own acceptance

procedures.

40 PROBATE & PROPERTY � NOVEMBER/DECEMBER 2003

These agency principles make it dif-ficult for financial institutions present-ed with a power of attorney documentto know what they should and shouldnot allow when the document does notclearly address the request. The generallanguage that is included in most pow-ers of attorney “to do any and allthings that I may do myself” may behelpful in discerning the general intentof the principal but may not be disposi-tive when considering the scope of theagent’s authority. A financial institutionmay be within its rights not to permitthe attorney-in-fact to take a requestedaction unless the specific authority totake such action is included in thepower of attorney. One court has statedit simply: “A written power of attorneymust be strictly construed so as toreflect the clear and obvious intent ofthe parties.” Crawford Sav. & Loan Ass’nv. Dvornak, 352 N.E.2d 261, 264 (Ill.App. Ct. 1976). For this reason, it is crit-ical that estate planners not rely onbroad boilerplate grants of authority inpowers of attorney if they want to trulyplan in an effective way.

“substantially all” of the assets—mil-lions of dollars—from the accounts andabsconded with the assets. No “PrimeBank Instruments of Credit” wereplaced in the account to replace theamount withdrawn.

When the plaintiffs realized thattheir attorney-in-fact had taken theirmoney, they brought an action in feder-al district court against the namedattorney-in-fact and against the Bank.They alleged that the Bank had violat-ed the terms of the depositor agree-ments between themselves and theBank, and that the Bank had allowedthe attorney-in-fact to act beyond hisauthority. In denying the Bank summa-ry judgment, the court’s opinion statedthat the acceptance of the power ofattorney documents bound the Bank toadminister the plaintiffs’ accounts onlyin a manner consistent with the termsof the powers of attorney. The courtfound that “an implied contract for thehandling of the plaintiffs’ accounts”had arisen by the Bank’s acceptance ofthe powers of attorney and that theterms of the powers of attorney acted

together with the Bank’s deposit agree-ments to bind the Bank. When the Bankpaid out all of the assets of the accountand did not withhold “cash and/orPrime Bank Instruments of Credit in anamount of not less than the initial cashdeposited,” the Bank had violated itsagreement with the plaintiffs. The opin-ion concluded that “where, as here, a bankcan easily ascertain whether an agent isexceeding his authority on the face of docu-ments necessary to the transaction, it willbe liable for the unauthorized transactions.”Id. at 117 (emphasis added).

Compounding this risk is the inter-pretive principle that a document con-ferring agency on another must be con-strued narrowly. RESTATEMENT (SECOND)OF AGENCY § 37. Under this rule, codi-fied by statute in several states, a thirdparty is generally not entitled to inter-pret ambiguous provisions in favor ofallowing the agent to act for the princi-pal. Case law also provides examplesin which courts have rejected the attor-ney-in-fact’s ability to take actions thatwere not expressly identified in thedocument.

Remember the Financial Institution’sPerspective

When working with a power of attorney, remember thebalancing act faced by the financial institution and therisks that it faces when it considers accepting the docu-ment. Remember that the attorney-in-fact is not the finan-cial institution’s customer. Build in sufficient time for thefinancial institution to conduct its document review.Do not set the expectation when advising attorneys-in-fact that access to the principal’s account will happenimmediately.

Draft Both Comprehensive and SpecificLanguage in the Document

When drafting, remember that general authority lan-guage is helpful, but it is not always sufficient to author-ize specific actions. Specify with precise language anyauthority that the client believes may be necessary for theattorney-in-fact. Think prospectively about the types ofaccounts that your client may later own. Add specificlanguage to reflect the client’s wishes. For example, spe-cific language generally must be in the document whenthe attorney-in-fact may want to execute beneficiary des-ignations on the principal’s behalf.

Backstop with Broad Authority,But Don’t Rely on It

Backstop the document with broad general authority lan-guage. Although not sufficient by itself, broad generallanguage can give additional comfort to the institution asto its customer’s intent. In close interpretive cases, theinstitution may use broad language to permit a specifictransaction.

Minimize Limitations ThatMake Acceptance Difficult

Powers of attorney that contain material limitations onthe ability of the attorney-in-fact to act will make accept-ance difficult. When drafting, minimize restrictions on theattorney-in-fact’s ability to access, trade, or deal with theprincipal’s assets. Examples of material limitationsinclude expiration dates or events, restrictions on theattorney-in-fact’s ability to act with certain assets (forexample, “the attorney-in-fact may not trade my IBMstock“), or conditions that terminate authority that areoutside the purview of the financial institution (for exam-ple, “my agent’s authority shall last so long as I reside inXYZ Assisted Living Facility”).

What Estate Planners Can Do

PROBATE & PROPERTY � NOVEMBER/DECEMBER 2003 41

Risks in Not Accepting thePower of Attorney

Given the above risks facing a finan-cial institution presented with apower of attorney, one wonders whyit would recognize one at all. Oneanswer is that if the financial institu-tion unreasonably refuses to recog-nize a power of attorney, the finan-cial institution faces risks from non-acceptance. Some state statutesrequire that a third party accept areasonable and valid power of attor-ney. Section 709.08(11) of the FloridaStatutes provides an example: “Inany judicial action under this[durable power of attorney] section,including, but not limited to, theunreasonable refusal of a third partyto allow an attorney in fact to actpursuant to the power, and chal-lenges to the proper exercise ofauthority by the attorney in fact, theprevailing party is entitled to dam-ages and costs, including reasonableattorney’s fees.” These statutes arebased on the policy that a financialinstitution should not unreasonably

fail to honor a valid power ofattorney.

Because these statutes contain areasonableness standard, a financialinstitution that rejects a documentbased on reasonable acceptance andreview guidelines should be protect-ed from liability. In addition, thedamages that would result from lia-bility for non-acceptance would gen-erally be different from those stem-ming from exposure for permittingan unauthorized person to access theaccount. For example, damages foran unreasonable failure to accept apower of attorney might equal thecosts associated with the courtappointment of a guardian in lieu ofreliance on the power of attorney.Even without liability exposure, afinancial institution’s unreasonablefailure to accept a valid power ofattorney is not sound business policy.As stated above, many account own-ers intend that these documents behonored, and an unreasonable powerof attorney rejection can lead to cus-tomer dissatisfaction.

Institutional Risk Mitigation StepsWhen Accepting a Power of

Attorney

After considering the risks involved inthe acceptance of powers of attorney,the financial institution must considerwhat steps are available to protectitself. The estate planner working withattorneys-in-fact should be familiarwith these steps to facilitate documentacceptance. The first step might be arequirement that only an originalpower of attorney document will beaccepted. In some cases, a documentmay include a provision that a photo-copy may be relied on as if an original,a provision that might be acceptable forsome institutions. Others, however,may require an original document toprotect against the fraud risk discussedabove. A third group might ask forsome type of certification by a notaryor attorney that the copy presented is avalid copy of the original.

A second step may be requiring anattorney-in-fact to execute an affidavitstating that the power of attorneyremains effective at the time it is pre-

Plan Ahead When Drafting Springing and JointPower Provisions

Certain provisions can cause problems if not carefullydrafted. Springing powers of attorney generally providethat the authority of the named attorney-in-fact becomeseffective only upon some event, typically the incapacityof the principal. Financial institutions recognize this pro-vision, but the planner needs to draft the “springing”event provision so that it is absolutely clear to the institu-tion what is required to prove incapacity (and thus thedocument’s effectiveness). State in the power what docu-ments a third party can rely on to know that the spring-ing event has occurred. A financial institution thatreceives a springing power of attorney in which it is notclear exactly what it can rely on may reasonably refuse torecognize the power.

Similarly, planners should draft specific guidelinesregarding succession. To state that a successor attorney-in-fact will act if the first named attorney-in-fact is“unable or unwilling to serve” can create ambiguities.Producing the death certificate of the first named attor-ney-in-fact shows that a successor has authority to act,but what about other situations? Is the successor’s writ-

ten statement that he can’t locate the first named attorney-in-fact acceptable? Is an affidavit signed by the successoracceptable? What if the primary attorney-in-fact is inca-pacitated? The planner needs to make it clear how thefinancial institution can verify the identity of the actingattorney-in-fact.

Another common planning technique that may presentdifficulties is the use of joint powers that name multipleattorneys-in-fact to act unanimously. There are manygood planning reasons for joint powers, but the financialinstitution needs to receive joint instructions for everyinstruction that it receives to recognize the authoritygranted under the document. For example, every securi-ties transaction might need joint signatures, and thiswould create an administrative burden for a financialinstitution (and for the attorneys-in-fact) acting under ajoint power. Planners should weigh the goal of facilitatingefficient use of the power of attorney against the goalsachieved through use of the joint power. In some cases,multiple attorneys-in-fact should be given individualrather than joint authority. Alternatively, the documentcould provide for delegation to one of the attorneys-in-fact by the others.

What Estate Planners Can Do

42 PROBATE & PROPERTY � NOVEMBER/DECEMBER 2003

sented. Under the Uniform DurablePower of Attorney Act, enacted in anumber of states, the financial institu-tion receives protection from certainrisks, including the risk of revocation,if it has relied on an affidavit executedand submitted by an attorney-in-factthat declares that the power of attor-ney is still effective. The UniformAct’s affidavit, however, does not pro-tect the financial institution againstthe risks presented by a power ofattorney that is not valid for therequested specific transaction or by anexpired power of attorney. In addi-tion, the affidavit may not offer anyprotection in the case of a forgedpower of attorney.

A third mitigation step might be arequirement that an attorney-in-factindemnify the institution against itsexposure for acceptance-related risks.Because the financial institutionaccepts the power of attorney as anaccommodation to its customer, itmay ask for an indemnification tocover the risks that the attorney-in-fact may act beyond the scope of his

or her authority or that the principalhas revoked his or her authority.

A fourth step might be a review ofthe power of attorney document underpre-established guidelines to verify thescope of the attorney-in-fact’s authority.By careful review under its own proce-dures, the financial institution canestablish a reasonable process forscreening out unacceptable powers.Because of the risks inherent in thedocument, the financial institutionwould be wise to scrutinize it beforeacceptance. This step may result insome delay in access to the account bythe attorney-in-fact.

Finally, another step taken by manyfinancial institutions is the provision ofa standard form durable power ofattorney for its customers. Obviously,when incapacity of the customer hasalready occurred, this form is offeredtoo late. In addition, some plannersmay not be comfortable with use of thefinancial institution’s standard “onesize fits all” form. Financial institutionsgenerally like their own preprintedforms, however, because they have

drafted the document and are thereforefamiliar with the scope of the attorney-in-fact’s authority.

Conclusion

Financial institutions have at timesearned their difficult reputation fordurable power of attorney policies. Butmany financial institutions are tryinghard to accommodate their customers bytaking a fresh look at these policies, evenin the face of the significant risks thatface institutions with every power ofattorney that they accept. Considerationof the financial institution’s perspectivemay make an estate planner better ableto facilitate a client’s wishes by draftingeffective powers of attorney. Thisinvolves thoughtful drafting of the attor-ney-in-fact’s authorized actions and con-sideration of the financial institution andtypes of accounts owned by your client.Taking steps in these areas at the time theestate plan is drafted can facilitate thelater interaction between the client’sattorney-in-fact and his financial institu-tion at the time when it is most impor-tant for the client. �

Consider the Client’s Assets andHow They Are Owned

Make sure that the principal’s assets are owned in a man-ner that allows an attorney-in-fact to act on them. Certainaccount registrations may not accommodate powers ofattorney. For example, if a power of attorney was execut-ed by an individual to cover assets owned by that indi-vidual, a financial institution may not be able to recog-nize the attorney-in-fact’s authority to act over anaccount with a trust registration.

Execute Multiple OriginalsBecause a financial institution may request an originaldocument to help protect it against the risk of fraud, con-sider executing multiple originals of the power of attor-ney. When determining where the originals will bestored, consider security, ease of access, and how the doc-ument may be used.

Consider Re-execution of the Power ofAttorney When the Plan Is Revisited

Agency law may provide that the authority of an attor-ney-in-fact will lapse because of the passage of time. Inaddition, the named attorney-in-fact may no longer beappropriate. The planner should review and re-execute

the client’s durable powers of attorney when the estateplan is reviewed. This will permit the planner to amendthe document with new specific powers that the attor-ney-in-fact may now need. Add language to the power ofattorney document that expresses the principal’s intentthat the lapse of time will not cause the authority grantedin the document to expire.

Consider Use of the Financial Institution’sPower of Attorney Form

After the estate planner has gone through the work ofcarefully crafting the document for the client, it maysound illogical to ask the client to execute a standardpower of attorney form offered by the financial institu-tion. It may be worth considering, however, to facilitaterecognition of the attorney-in-fact’s authority. Here, theplanner will need to weigh the goal of customizationagainst the goal of efficient use. As in much of estateplanning, there is no “right” answer, and each client mayhave different objectives. If the planner does complementthe power of attorney document with a financial institu-tion’s form, be sure to name the same attorneys-in-fact toprevent later disputes. The financial institution seeks cer-tainty, and, if it is lacking, recognition of an attorney-in-fact will be more difficult.

What Estate Planners Can Do