Founding partner, Michael D. Rudy, discusses the use and misuse of powers of attorney when dealing with trust assets.
With the widespread use of revocable trusts in estate planning, financial institutions occasionally find that they are presented with powers of attorney which the holder uses to attempt to withdraw cash, securities, or other forms of assets from accounts.
Our firm has seen several instances where individuals have either not been named a successor trustee or have failed to accept the successor trusteeship position, yet have actively used the power of attorney to extract significant funds from trust bank accounts.
The misuse of a power of attorney often happens when an elderly individual is incapacitated and the holder of power of attorney begins to make withdrawals.
What happens if the power of attorney is used to extract trust assets and the withdrawals are for an improper purpose (e.g. a vacation to Europe for the holder of power of attorney)? Is the financial institution liable? The answer lies in how the power of attorney is drafted. Many well-drafted powers of attorney incorporate the holder’s powers to include the trust. If that is the case, and it references the trust with specificity, then it is unlikely that the bank would be liable for improper withdrawals.
The answer becomes murkier if the holder of the power of attorney does not reference the powers of the trust. The question that then arises is whether the power of attorney and the holder of the power of attorney and the trustee are one and the same, and whether or not the documents were drafted essentially on the same day as part of the same estate planning “package” in which the intent of the grantor was to have the same individual exert broad powers.
These types of fact patterns remind us of the old adage that whatever can go wrong will go wrong. Banks and other financial institutions should strive for consistency in how a client or customer titles their accounts. Nothing good can happen by having some accounts titled in the name of the trust and some in their individual names unless there is solid justification for doing so. Confusion on the part of a bank can quickly lead to honest mistakes and the improper use of a power of attorney.