Scenario 1: Your father has a checking account in his name alone, but can no longer keep track of his finances. Bills were going unpaid. You’ve been stopping by his house every Sunday to organize the bills and fill out checks for him to sign. Suddenly, he becomes quite ill, is admitted to the hospital, and then transferred to a skilled nursing facility. He can no longer physically sign his name. Your father never signed a power of attorney. Can you continue to pay his bills from his account?
Scenario 2: Your mother signed a power of attorney, naming you. You’ve been signing her checks to pay her bills, so they don’t keep accumulating on the dining room table. Her checking account is in her name only. Your mother dies, and you need to pay the funeral home right away. Can you sign another check just like before?
A power of attorney is a document in which you name an individual who can help you take care of your finances while you are living. This individual is called an attorney-in-fact (it is the document itself that is called a power of attorney, not the individual). Your attorney-in-fact can sign checks, transfer money, sign tax returns, sell and buy real estate, and sign contracts, among other things. Your attorney-in-fact acts on your behalf when you need or want assistance: perhaps you are hospitalized or traveling abroad, maybe you are having difficulty writing or with your vision, or are experiencing memory loss or confusion.
If you do not have a well-drafted and current power of attorney, and you have individually owned assets and accounts that need attention (for utilities, rent, credit cards, required minimum distributions, etc.), someone will have to petition to be appointed your conservator through the probate court. A conservator is similar to guardian, but controls your finances specifically. This process is public and costly and can cause a delay in accessing needed funds. Having a properly drafted and executed, up-to-date power of attorney will avoid that process. In scenario 1 above, you would need to pursue a conservatorship over your father, because, in the absence of your father’s ability to sign his own checks, you have no way of accessing his checking account. Had he signed a power of attorney, you could act on his behalf immediately by simply providing the bank with a copy of the document.
It is important to know that on someone’s death, a power of attorney ceases to have any validity. An attorney-in-fact no longer has any access to the individually owned assets and accounts they had access to before the loved one passed away. Bank accounts will freeze, and no checks can be written or deposited. At this point, it is the personal representative (executor) named in the deceased’ person’s will who will eventually have access to these accounts. This only happens after going through the probate process and receiving an official appointment by the court. In scenario 2 above, your authority over your mother’s accounts is extinguished upon her death, and you will have no access to her money to pay the funeral home. Bringing a copy of her death certificate and her will to the bank is insufficient. You will need to show the bank your official court appointment as personal representative, a document you receive only after you begin the probate process. This can take weeks, if not sometimes months.
A power of attorney is an extremely important part of an estate plan, but it is only one part. Work together with your estate planning attorney to discuss ways of maintaining access to accounts through illness or disability, and strategies to avoid frozen bank accounts at death.