This chapter is from the book
This chapter is from the book
This chapter is from the book
IRS Dangers
You might think that if a provision in your Durable Power of Attorney authorized your attorney-in-fact to deal with the IRS on tax matters on your behalf, such provision would be clear enough for even those linguistically challenged people at the IRS. Unfortunately at the IRS they often operate under their version of the Golden Rule, which again is “We have the gold, so we make the rules.” And the rule they have made applicable in this situation is that you must either use their own Power of Attorney Form or you must list in your Durable Power of Attorney the specific tax years for which you authorize the attorney-in-fact to act on your behalf. And although you can designate any specific years or periods of time that have already passed, the Power of Attorney is only good for three years into the future, thus making it necessary to update your Durable Power of Attorney every three years.
One problem that continues to arise is that of particular banks, brokerage houses or other financial institutions making their own rules (the revised Golden Rule again) as to whether they will honor a Durable Power of Attorney. Like the IRS, they prefer that their own forms be used or alternatively, that your Durable Power of Attorney has been executed within a specific period of time, ranging from 60 days to 3 years of the time the Durable Power of Attorney is presented to the bank or other institution. These requirements exceed those imposed by the law in determining a valid Durable Power of Attorney; in many instances, attorneys, including me, have found themselves going to court to obtain an order requiring the particular institution, in my client’s case, a bank, to honor the Durable Power of Attorney.
The problem to a great extent has been reduced in recent years by including provisions in the Durable Power of Attorney that provide both an incentive for these institutions to accept the Durable Power of Attorney and a disincentive to deny it. One new provision excuses the bank or other institution that accepts the Durable Power of Attorney from any liability for relying on the document in good faith. On the other side of the coin, another recent provision holds the bank or other institution legally and financially responsible for its failure to honor a Durable Power of Attorney that complies with state law. There is also a movement around the country to amend the Durable Power of Attorney laws to reduce this problem.
Banks or other institutions to which a Durable Power of Attorney is presented also commonly require the attorney-in-fact to sign an affidavit that says that the Durable Power of Attorney is still in effect and valid. In fact, the law in about half the states specifically provides for an affidavit signed by the attorney-in-fact stipulating that the principal is still living and that the Durable Power of Attorney has not been revoked, these statements being sufficient to prove the effectiveness and validity of the Durable Power of Attorney.
All in all, a Durable Power of Attorney is an important document that should be a part of everyone’s estate and financial planning. Just like the advertisement for American Express says, “Don’t leave home without it.”