POA Exercised After Accountholders Death

Question: We had a joint account - mother and son - into which the mother's social security checks were either deposited every month into the account, or cashed by her son, who was also her power of attorney. We've now had notice that the mother died 16 months ago, although the checks were all endorsed by her son as POA. Obviously he was aware of the facts, although we were not. I looked up our state Statutes for POA and it says, clearly, "Third parties who act in reliance upon the authority granted to the attorney in fact under the durable power of attorney and in accordance with the instructions of the attorney in fact must be held harmless by the principal from any loss suffered or liability incurred as a result of actions taken prior to receipt of written notice pursuant to subsection (5). A person who acts in good faith upon any representation , direction, decision, or act of the attorney in fact is not liable to the principal or the principal's estate, beneficiaries, or joint owners for those acts."

My question is, what should the bank have done to keep this from happening? If we were acting in good faith of the POA, and had not received notice of death, why are we liable?

Answer: Like so many laws and statues, this one was not written to be easily read and understood.

When the statute says "Third parties who act in reliance upon the authority granted to the attorney in fact under the durable power of attorney ... must be held harmless by the principal from any loss suffered...etc." it means the bank, by accepting the power, will not be held accountable (liable) for negotiating for the attorney in fact (the son) by the owner of the account (the mother). The Durable Power of Attorney is intended to surpass a regular Power in that if the grantor becomes incompetent, the durable power will stay in effect. A regular POA would not. However, ANY power of attorney granted ceases to be effective upon death of the principal. The exposure of the bank is common here, and unfortunately many receive claims similar to this one. What could the bank have done? Many either read the obituaries or they will ask a state office to supply them with a list of death certificates issued each month and compare it to their central files.

Obviously this is a deliberate fraud on the part of the son, and the bank should go after him for recovery, both through civil and criminal prosecution. You might also want to file a Suspicious Activity Report, and you could even take it one step further and issue a 1099 to the son for the amount involved, and report that income to the IRS.

Copyright © 2005 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 15, No. 6, 7/05