Even a perfectly prepared and executed power of attorney (POA) can be rejected or called into question by a third party. Banks, brokerage firms, insurance companies, and other institutions often raise objections when presented with a POA by the named agent. They may demand proof that the POA is still valid or complain that the power of attorney is “stale” – i.e. was executed too long in the past.
Some third parties will not honor a POA without a “Medallion guarantee” through a participating bank. Others may try to demand that its own form be used or that certain internal requirements of the third party be met.
In some situations it may be easier to meet the third party’s requirements rather than fight them. But in other cases those requirements may be onerous or impossible to meet. If you are in one of those difficult situations, be aware that the law provides you with tools you can use to get your existing POA accepted. Read on to find out more.
Where Government Benefits are NOT involved:
Various provisions of Pennsylvania law provide the person seeking to act as agent with the means to limit the potential for rejection of a power of attorney by non-governmental entities. Key provisions are located in Chapter 56 of Title 20 of Pennsylvania’s Consolidated Statutes (the Decedents, Estates and Fiduciaries Code), the Pennsylvania law governing POAs.
The issue of “staleness” is effectively refuted by section 5604(b) of Title 20 which states that unless the power of attorney states a time of termination, it is valid notwithstanding the lapse of time since its execution. And section 5604 authorizes the agent to execute an affidavit that serves as conclusive proof of the non-revocation and non-termination of the power.
Section 5605 provides that even the death of the maker of the POA does not revoke or terminate the agency as to an agent or third parties who act in good faith without actual notice of the death.
To further facilitate the acceptance of powers of attorney, Section 5608(a) places an affirmative duty on third parties to comply with the instructions of the agent. Third parties who fail to comply with the instructions of the agent without reasonable cause are subject to civil liability for any damages resulting from the noncompliance. And Section 5608(b) provides third parties with immunity if they act in good faith reliance on the instructions of the agent.
Thus a third party is generally at a much greater risk of liability for failing to accept the agent’s authority than for accepting it. The law reads as follows:
(a) Third party liability. Any person who is given instructions by an agent in accordance with the terms of a power of attorney shall comply with the instructions. Any person who without reasonable cause fails to comply with those instructions shall be subject to civil liability for any damages resulting from noncompliance. Reasonable cause under this subsection shall include, but not be limited to, a good faith report having been made by the third party to the local protective services agency regarding abuse, neglect, exploitation or abandonment pursuant to section 302 of the act of November 6, 1987 (P.L. 381, No. 79), known as the Older Adults Protective Services Act.
(b) Third party immunity. Any person who acts in good faith reliance on a power of attorney shall incur no liability as a result of acting in accordance with the instructions of the agent.
These statutory provisions work to effectively exonerate third parties from liability for following the instructions of the agent, but place them at risk if they disregard them. A letter from a lawyer pointing out these statutory sections, especially when combined with an affidavit, has typically been sufficient to convince third parties to follow the directions of the agent.
But recently a decision by the Pennsylvania Supreme Court has raised the level of risk encountered by banks and other third parties when they act on the instructions of an agent. In Vine v. SERS Board, Pennsylvania’s highest court held that a third party is ONLY entitled to immunity if the POA turns out to be legally valid.
For example, if the maker was not competent when he or she signed the POA, the document is not valid and the statute’s immunity protection does not apply. Even though the POA appears to be valid on its face, the third party may bear liability for accepting it and acting in accordance with the instructions of the agent.
This ruling puts third parties in a “damned if you do, damned if you don’t” situation. As you might guess, banks in Pennsylvania have been lobbying to have the Legislature fix their Vine problem.
It is likely that 2014 will see legislation enacted that will address the result in Vine and re-establish a clear path to immunity for third parties. Competing, but very similar, bills have been passed by the state House (House Bill 1429) and Senate (Senate Bill 620). One of these bills will probably become law later this year. Both bills would make significant additional changes to Pennsylvania law regarding POAs.
Occasionally an institution will demand a Medallion guarantee. The Securities and Exchange Commission describes a Medallion guarantee as a type of signature guarantee that most transfer agents will require before they process the transfer or sale of any securities you hold in your own name (i.e., in certificate form as opposed to your broker holding them for you in street name). You can get a Medallion guarantee from any commercial bank, savings bank, credit union, or broker-dealer that participates in one of the Medallion signature guarantee programs. While it can be argued that requiring a Medallion is inconsistent with Pennsylvania law, the easiest solution when this situation is encountered is usually to obtain the Medallion guarantee.
Where Government Benefits ARE involved:
Most people who receive federal benefits are able to manage their own financial affairs. However, some beneficiaries are unable to manage their benefits because of physical and mental problems. When this happens, the federal agency issuing the benefit check may appoint a representative payee to manage the benefit amount.
The following government agencies administer programs that may refuse to recognize the authority of an agent acting pursuant to a power of attorney:
A. Social Security Administration;
B. Office of Personnel Management; and
C. Railroad Retirement Board.
Instead, each of these agencies has its own rules for determining whether a payee is needed and who the appropriate person or program will be. They may also impose additional requirements and restrictions such as requiring the filing of an annual “Representative Payee Report” stating how the benefits have been used.
One practical work-around that some people use to circumvent these agency requirements is to have the government benefit check direct deposited into a bank account. The power of attorney is then used to access the funds after they are deposited.
This work-around is not approved by the agencies. They specify that if you have POA for a beneficiary who is found incapable of managing their own benefits, you must still file an application to serve as representative payee.