By Craig Watson
John’s parents were in their 90s. They had banked at Big Bank for most of their life. They even owned stock in Big Bank since it was listed on the NYSE. When John’s Dad died, his mother signed a Statutory Power of Attorney that John obtained from the lawyer who handled his divorce. John, his three brothers and his mother wanted to set up her estate to avoid probate. His mother had over $500,000 in her checking account at Big Bank and another $750,000 in certificates of deposit (CDs) scattered at several local banks. He wanted to move some of the money to another bank in order to keep the deposit amount under the FDIC insurance maximum limit. The banker suggested that his mother should use a “payable on death” (POD) beneficiary form to change her account so that her money would pass equally to her four sons without probating her will. The banker told John that by adding her four sons to her accounts, her FDIC coverage at Big Bank would be increased to $1,250,000. However, the banker insisted that his mother sign a new power of attorney on a standard power of attorney form supplied by Big Bank. So John took Big Bank’s power of attorney to his mother. She signed it in a notary’s presence and he returned it to Big Bank. John used Big Bank’s power of attorney to add him and his brothers to his mother’s accounts. Since the banker had helped him obtain more FDIC coverage, John decided to simplify his mother’s estate by moving her other deposits to Big Bank. He took the power of attorney to the local banks and withdrew her CDs, even though they had not matured, and moved all her money to Big Bank.
John used the Big Bank power of attorney all year to make deposits and write checks. His mother decided to give her house, valued at $120,000, to John’s brother for Christmas. She also instructed John to withdraw $360,000 from her account and divide it into three equal shares to give to himself and his other two brothers so that all four of her sons received the same amount. He used the Big Bank power of attorney to do this without objection from Big Bank.
John’s mother died soon after New Year’s Day. A couple of months after the funeral, after all her bills were paid, John and his brothers went to Big Bank to withdraw their equal shares of her accounts. They were shocked and angered when Big Bank told them that it would not honor its own Big Bank power of attorney because the Big Bank corporate attorney decided that its power of attorney did not give John the right to add POD beneficiaries to his mother’s account. It made no difference that the banker at Big Bank had allowed John to use Big Bank’s power of attorney to add the POD beneficiaries and that John had relied on the banker’s advice to withdraw his mother’s money from the other banks and deposit it at Big Bank. Big Bank’s decision to go back on their word required John and his brothers to incur extra expense and delay to probate his mother’s estate. Big Bank refused to reimburse John and his brothers for the extra cost made necessary by Big Bank.
What could John have done differently to avoid this frustrating experience? If John had sought the counsel of an elder law attorney to advise him, he would have been provided with a power of attorney that Big Bank would have accepted and that would have authorized John to add the POD beneficiaries to his mother’s accounts. In the alternative, based on the elder law attorney’s advice, John and his mother may have decided to use a revocable trust to avoid probate instead of trying to use POD beneficiary designations. Using a revocable trust to avoid probate is a far more reliable method of avoiding probate than using POD designations, which often result in problems. Using right of survivorship accounts to avoid probate often causes even more surprises. Finally, it is important to remember that when you hire an attorney, he represents you and only you. If you rely on a legal document drafted by Big Bank’s lawyer, or anyone else’s lawyer, you are on your own.
Craig Watson’s law practice focuses on Estate Planning, Probate, Guardianship and Elder Law. Formerly a CPA, he has 25 years of experience. Call 903-813-8500 or go to Craigwatsonlaw.com