A Power of Attorney allows you to name someone ("attorney-in-fact") to handle your financial affairs if you cannot do so yourself. The attorney-in-fact can pay bills, sign checks, open and close accounts, sell real estate, sign tax returns, and perform other financial acts on your behalf.
An attorney-in-fact is a fiduciary, meaning that he must act in your best interests. He cannot use your money for his own needs and interests. If your attorney-in-fact did so, it would be a breach of fiduciary duty and he would be legally liable.
Many times, an attorney-in-fact will ask to be added to your bank account. It is important that the bank handle this request correctly. Your attorney-in-fact should be added to your bank account as an agent under a Power of Attorney, not as a joint owner.
Joint Owners Have Full Rights of Ownership
If your attorney-in-fact is named as joint owner, then he will have right to all the money in the account. Both owners on the account can use the money for their own purposes. However, this is not what you intend to do when you create a Power of Attorney, and it does not offer the same legal protection.
It is not an uncommon complaint that the attorney-in-fact took all the money and disappeared or used the money for his own needs. Financial exploitation of the elderly is common and is often, statistically, inflicted by family members. This type of theft is difficult to pursue because the joint owner can legally take the money out of the account. The legal protection offered by the Power of Attorney designation is irrelevant because the attorney-in-fact is named as a joint owner instead of as attorney-in-fact or "POA".
In addition, if your attorney-in-fact is named as joint owner to your bank account, then that account is subject to the attorney-in-fact's liabilities. For example, if your attorney-in-fact is named as joint owner and is sued, your bank account will be subject to pay the judgment. The same is true if your attorney-in-fact (if named as joint owner) files bankruptcy or gets divorced.
How to Properly Designate Your Bank Accounts
If you want to add someone as attorney-in-fact to your bank account, it is important that you designate it properly. The attorney-in-fact should be designated on the account as "POA". This designation makes it clear that the person is acting on the account as a fiduciary, not as a joint owner.
In the event that there is financial abuse, law enforcement officials will be able to take action to pursue the theft. The designation of "POA" is an important step to avoiding the financial abuse of the elderly. It will also prevent loss of your money if creditors or others have claims against the attorney-in-fact.
Having a Power of Attorney is an important document in your estate plan. This article can help you communicate with your bank to make sure your attorney-in-fact is properly designated on your account.
Source: Bank Accounts and the Power of Attorney Designation by Michael P. Affuso, EVP/Director of Government Relations, NJBankers