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Power of Attorney and Living Trust
Documents
By Terri D. Thomas, JD
September 11, 2014
©2014, Terri D. Thomas
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Sample POA- Page 3
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Parties Principal- The individual granting the power of
attorney.
Attorney in Fact- The individual who is given the power to act. Said individual is also known as an Agent.
Agency/Fiduciary Relationship
Not exclusive
Power of Attorney- An instrument
authorizing one person to act on behalf of
another. (Page 3)
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Durability-Durable Power of Attorney (Page
4)
Must state:
The instrument is not affected by the subsequent
disability or incapacity of the Principal
Applicable to most Powers of Attorney
Some states have reversed the presumption and
now say that a power of attorney is automatically
durable unless the document says otherwise.
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A power of attorney which becomes valid only upon the occurrence of a condition or specific event.
Triggering event such as disability or incapacity of the Principal.
Springing Power of Attorney (Page 4)
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Financial Institutions should
always:
Verify the Power of Attorney does not have conditional language; or
Confirm that all conditions listed in the Power of Attorney have been met (an affidavit from attorney in fact).
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General vs. Limited Powers of
Attorney (Page 4) Powers of Attorney (durable, non-durable, springing)
can be general or limited.
Limited Power of Attorney- only grants specific
power and authority to the Attorney in Fact. Can
financial institution live up to the limitations?
Authorized signers and safe deposit deputies are
limited Powers of Attorney. Bank approves the
form.
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General Rules When Accepting (Page 5)
Verify Principal signed
Confirm Attorney in Fact’s identity
Verify authority to Act (is power covered in POA)
Is the POA in effect and is it durable?
Does the POA need to be recorded? (real estate)
States encourage use through statutes and case law.
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Revocation of Powers of Attorney (Page 6)
By its terms
Notification to financial institution
(Reasonable time to act)- verbal vs.
written notice
By divorce proceedings (Financial
institution on notice and reasonable time
to act-some states)
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Death of the Principal (Page 7)
Terminates Power of Attorney
Once knowledge of death obtained, financial
institution should not complete any transactions
via a Power of Attorney (only a few states permit
the attorney in fact to do a few LIMITED things
after the principal’s death, such as pay
reasonable funeral expenses).
Use caution
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Multiple Attorneys in Fact (Page 7)-
Multiple Attorneys in Fact named in separate
documents- all designations are valid unless
specifically revoked.
Multiple Attorneys in Fact named in one
document- permitted. Must act jointly, unless
the document permits “joint and several” or
“independent” powers;
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“Red Flag” Transactions (Page 7)
Execute, amend or revoke a trust agreement;
Fund a trust not created by the principal with the
principal’s property;
Make or revoke a gift;
Disclaim a gift or devise of property;
Create, designate or change survivorship/
beneficiary interests;
Designate one ore more substitute/
successor/additional attorneys in fact
Transaction clearly benefits Attorney in Fact (such
as depositing a check payable to the principal into
the attorney in fact’s account)
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No powers to do the following acts:
(Page 9)
Make, change, alter or amend will;
Make, execute, modify or revoke a living will
or a durable Power of Attorney for Health
Care decisions;
Require Principal, against Principal’s will, to
take any action or to refrain from taking any
action; or
To carry out any actions specifically
forbidden by the Principal while not under
any disability or incapacity.
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Third Party Protections – States
Want to Encourage Acceptance (Page 9)
Third Party may freely rely on, contract and
deal with an Attorney in Fact . . .
In the absence of ACTUAL KNOWLEDGE,
third party is not responsible for determining
authenticity, validity, etc.
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Financial institution has received notice
or information and has reasonable time
to act.
Financial institution can establish
procedures as to how notice is to be
received. Procedures will be binding
(with notice) on principal and attorney in
fact.
What is “Actual Knowledge?” (Page 10)
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Guardians/Conservators (Page 11)
Guardian/Conservator Can Revoke Power of
Attorney
Financial institution can continue to honor
POA until it receives notice of revocation from
court-appointed party
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What Can Typically Be Required of an
Attorney in Fact? (Page 11)
Specimen signature
CIP requirements- based on Principal’s
capacity
Affidavit that POA has not been revoked
Indemnification Agreement
Prescribe place and manner notice is to be
given and time the financial institution must
comply
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Other Policy Considerations (Page 12)
Is the Power of Attorney old?
Has the Principal executed and
revoked multiple Powers of Attorney
to multiple parties, so that the financial
institution is unsure who is authorized
to act on behalf of the Principal?
Is fraud suspected?
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IN MOST STATES . . . (Page 12)
A financial institution does not have to
accept a Power of Attorney. Reserve
the right to reject in your account
documentation.
Some states do require a third party to
accept a power of attorney. Check with
local counsel.
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Scenario #1
John gave Mary a General Durable Power of
Attorney (anything John can do, Mary can
do). Mary wants to use the POA to add
John’s son on John’s accounts as a POD
beneficiary. Can she?
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Scenario #1
John gave Mary a General Durable Power of
Attorney (anything John can do, Mary can
do). Mary wants to use the POA to add
John’s son on John’s accounts as a POD
beneficiary. Can she?
Answer: Only if the act is specifically
authorized by the POA. Otherwise, seek the
advice of local counsel.
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Scenario #2
Mary wants to use the POA to re-title
accounts owned by John and put them into
the name of the John Doe Living Trust, which
was created by John, and for which Mary
acts as the Trustee. Can she?
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Scenario #2
Mary wants to use the POA to re-title
accounts owned by John and put them into
the name of the John Doe Living Trust, which
was created by John, and for which Mary
acts as the Trustee. Can she?
Yes. Transferring property to a trust created
by the Principal is normally covered by the
“general” authority of the POA. John created
the trust.
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Scenario #3
Mary wants to close out John’s accounts and
transfer the money to the “John and Mary
Doe Living Trust, Mary Doe, Trustee” which
is a trust created by Mary to benefit her and
John. Can she?
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Scenario #3
Mary wants to close out John’s accounts and
transfer the money to the “John and Mary
Doe Living Trust, Mary Doe, Trustee” which
is a trust created by Mary to benefit her and
John. Can she?
Only if the POA specifically authorizes this
because John did not create the trust, Mary
did. Seek the advice of local counsel.
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Scenario #4
Mary wants to use the POA to sign John’s
name as a borrower on a loan to be made to
John and Mary. Can she?
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Scenario #4
Mary wants to use the POA to sign John’s
name as a borrower on a loan to be made to
John and Mary. Can she?
Yes. This is an act that is generally covered
by the “general” powers of a POA.
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Scenario #5
Mary wants to use the POA to endorse a
check made payable to John, and then
deposit that check into Mary’s personal
account. Can she?
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Scenario #5
Mary wants to use the POA to endorse a check made payable to John, and then deposit that check into Mary’s personal account. Can she?
No, not without creating liability for the bank. UCC 3-307 states that a bank has notice of a fiduciary breach if it permits an attorney-in-fact to deposit a check payable to the principal into an account other than an account of the principal (or an account held specifically for the principal). Therefore, a bank will be liable to the principal if it allows this transaction to take place, and there isn’t some specific power given in the POA permitting the attorney in fact to benefit herself in such manner.
Questions?
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Trusts (Page 16)
Purpose
A completed transfer of ownership of property. Free
standing legal entity. Can be established for any
lawful purpose.
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Grantor-Power to create
terms of the trust,
may retain power
to amend or
revoke, has
authority to
designate
Trustee/Successor
Trustee, powers of
Trustee, and
determines
Beneficiaries.
Trustee-Manager and legal
representative of
trust entity. Holds
title to trust
property. Owes
fiduciary duty to
Beneficiary.
Property
Beneficiary-Receives the
benefit of the trust.
Legal Entity #1
(the Individual)
Legal Entity #2
(the Trust)
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Parties
Grantor- establishes trust, appoints trustee,
determines beneficiary, determines the property,
determines successors and how successors step
into the place of trustee.
Trustee- legal representative, controller of assets,
protector of property, fiduciary responsibilities to
beneficiaries.
Beneficiary- receives the benefits of the trust, has
no power over management, bound by trust terms.
Property- Trust will not exist until funded.
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Trust Types (Page 17):
Revocable- Grantor reserves the right to
amend or revoke trust or specific trust terms.
Irrevocable- Grantor does not have the right
to change the trust or any of its terms after
creation.
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Popular purposes-
Tax planning (Irrevocable Trusts)
Avoid incapacity proceedings (Revocable
Trusts);
Avoid probate (Revocable Trusts).
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Requirements (Page 17):
Grantor has legal capacity
Grantor/Donor owns the property
Grantor intended to create
Beneficiary specified
Trustee designated
Legal purpose
Rule Against Perpetuities in some states
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Living v. Testamentary Trusts
(Page 18)
Living (a/k/a Intervivos)- Trust is created (funded) while grantor is alive.
Testamentary (a/k/a Pourover Trust)- Trust is created by terms of a will or terms of another trust as a result of the death of the grantor.
Loving???
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Uniform Trust Code (Page 19)
Provides for use of Trust Certification (see Page 29);
Third Party not liable for Trustee’s actions if acting in good faith and without actual knowledge of a problem;
Gives Trustees a broad list of automatic powers;
Can appoint authorized signers unless trust document prohibits;
Some states allow for certifications, even though the UTC has not been adopted.*
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For most other states, variations of
Uniform Trustees Powers Act (Page
21) Does not deal with documentation issues
(neither allows, nor prohibits Trust Certification);
No clear “third party” liability language and no definition of “actual knowledge;”
Does not appear to permit authorized signers unless trust document permits.
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Establishing a deposit account for a trust (Page 22): Obtain an Affidavit/Certification of Trust signed by the
Grantor or Trustee, certifying that Trustee has powers to negotiate transactions on behalf of the trust (allowed for UTC states/could normally be used in other states);
Or obtain a copy of the first page (showing legal name of trust), page with trustee, page with trust powers (showing authority to act on account) and signature page (for other states if signed by grantor);
Do not read or keep a copy of the entire trust agreement. Why? Creates “actual knowledge;”
Account titling tips at Pages 31 and 32.
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Lending to a Trust (Page 24)
Trust Certification
Read and/or keep a copy of the entire trust agreement to confirm that there are no limitations on the trustee’s borrowing /pledging authority – don’t share;
Verify that trust owns the property being pledged to secure the loan;
Note: Grantor can not shift assets between the trust and individual ownership to avoid repayment of debt.
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429/4/2014
How is the contract signed?
On deposit relationships
_________________________
John Doe, Trustee of the John
Doe Living Trust u/a dated
January 5, 2000
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On loan documents:
________________________
John Doe, Trustee of the John
Doe Living Trust u/a dated
January 5, 2000
AND if grantor, revocable trust, may want to add the
following to the promissory note as a co-borrower
or guarantor (Reg Z can be an issue):
________________________
John Doe, Individually
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Other issues and problems (Page 24):
Co-trustees (joint or separate powers)-
presume joint unless document states
otherwise
Successor trustees- follow trust
instructions. If no one identified, court order
required.
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Powers of attorney/authorized signers
(Page 25)- General rules:
Grantor as principal of POA-won’t normally
affect trust.
Attorney in Fact exercising Trustee powers-
should be specifically authorized.
Authorized signers on trust accounts- under
UTPA, must be specifically granted in
document. Under UTC, allowed unless
document prohibits.
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As payable on death beneficiary
(Page 26)- normally allowed (may have to name successor trustee in titling). Do not allow an account owned by a trust to have a payable on death designation.
Joint Tenancy (Page 26)- Permitted, but why use it? Trusts don’t die! Potential problem for successor trustees with commingling of assets.
Safe Deposit Boxes (Page 26)- Definitely encourage. Trust owns right to access. Only owns contents if trust agreement transfers contents to trust.
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Multiple Beneficiaries (Page 27)- terms will
dictate how assets are to be divided. This is
the responsibility of the trustee, not the Third
Party. (Under FDIC/NCUA rules, do not need
to have beneficiary information on file for living,
revocable trusts.)
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Terri D. Thomas
Total Training Solutions
www.BankWebinars.com
800-831-0678
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Upcoming Webinars
September 11th - Marketing & Advertising Compliance - The
First UDAAP Hotspot
September 15th - Alert! Financial Crimes Enforcement Network:
Proposed Customer Due Diligence Requirements for Financial
Institutions
September 16th - Writing an Effective Credit Memorandum
September 16th - Compliance Perspectives: A Monthly Update
September 23rd - First Impressions - New Customer Onboarding
Strategies
September 23rd - Commercial Construction Lending
September 24th - Sixty (60) Steps for Properly Handling
Delinquent and Abandoned Safe Deposit Boxes (2014 Update)
September 24th - Morale and Motivation for Supervisors:
Keeping the Team Enthused About Their Job
September 25th - Legal Liabilities when Check Fraud
Occurs
September 25th - Business Development Strategies for Lenders
