The following facts introduce several issues related to the authority of an agent/attorney-in-fact named in a Statutory Durable Power of Attorney (SDPOA). Pat Lane opened a bank account in 1996, naming his son, William as the pay-on-death (POD) beneficiary. In 2009, Pat changed the account from a single-party account to a joint account with William giving his son the right of survivorship (ROS) to the funds in the account on Pat’s death. In 2012, Pat signed a SDPOA, naming William as his agent/attorney-in-fact.
Two days before Pat died, Pat’s former step-daughter, Amanda, the child of a now-divorced wife, brought papers to him to open a new single-party bank account naming William, Pat’s daughter and Pat’s two former step-children as POD beneficiaries. Pat signed the papers and Amanda took them to the bank and had the funds in the ROS account transferred into the new POD account.
The next day, William learned of the new account. He promptly went to the bank and used the power of attorney to withdraw all the funds from the POD account and closed it.
Did the William have authority to close the POD account?
Whether a the agent/attorney-in-fact named in a SDPOA has authority to alter a bank account that contains a POD or ROS beneficiary designation has not been squarely decided by a court case in Texas. Other states have addressed this issue and have concluded that the right to name a beneficiary to take funds in a bank account upon one’s death is a personal right that belongs only to the principal who established the account. Based upon cases in other states, the agent/attorney-in-fact could not withdraw the funds from the POD account. Pat was the principal who had established the account and he was the only one who could change the POD designations.
What, if anything, could William have done to protect his right in ROS account?
William could have filed a suit claiming that, on the day he signed the papers to set up the POD account, Pat did not have the mental capacity to do so. Of course, whether William can make that claim will depend upon whether the facts support such a contention. William will have to introduce evidence, which should include medical and lay testimony, as to Pat’s mental state on that day.
Instead of, or in addition to, his claim that Pat lacked competency, William could have alleged in the suit that the former step-daughter unduly influenced Pat to change the ROS account into the POD account. Undue influence is any act that overcomes a person’s free will and judgment.
Could Amanda sue William for breach of his fiduciary duty to Pat?
Assume that the facts show that Pat was competent when he established the POD account and that Amanda did not unduly influence Pat. Assume Amanda wants to sue William claiming that he breached his fiduciary duty owed to Pat by virtue of the POA. The fiduciary duty William owes to Pat is to act solely in Pat’s best interest.
Whether Amanda, could sue William for breach of that fiduciary duty on whether Amanda has what, in legal terms, is called standing to bring that claim. To have standing, Amanda will have to show that she was personally harmed by the breach and that she is not, in legal terms, a stranger to the POA that created the fiduciary duty. Amanda should be able to make the claim she was personally harmed by William’s action because when William closed the account, he took away her right to a portion of the funds in the account when Pat died.
Proving she is not a stranger to the POA is harder because only Pat and William, and not she, are parties to the SDPOA., That means that normally Amanda would be a stranger to the SDPOA.
Two exceptions to that rule have been found: one with regard to a person, named as a beneficiary to an insurance policy and another with regard to a person named as a beneficiary to a retirement account. These two exceptions result from the beneficiaries having had an “estate in anticipation” of the funds in the insurance policy and the retirement account. Unfortunately for Amanda, no case in Texas makes it clear that she, as beneficiary to the POD account, has an “estate in anticipation” of the funds left in the account at Pat’s death. In fact, one case out of the Texarkana Court of Appeals refused to extend the “estate in anticipation” exception to a beneficiary of a POD account.
Should an agent/attorney-in-fact avoid doing what Will did?
An agent/attorney-in-fact, whose authority stems from a SDPOA, should not withdraw funds from a POD account and close it. Nor should he or she change POD or ROS beneficiaries on such an account the principal has created, or .transfer the funds into another account without beneficiary designations or with different beneficiary designations. Even though Texas has not ruled on the issue, courts in other states have held that the right to name beneficiaries is a personal right of the principal that the agent cannot exercise.
Additionally, one justice in the Texarkana case, mentioned above, dissented from the majority opinion. The dissenting justice found no legal basis existed to distinguish insurance policies, retirement accounts and POD designations, since all three are non-testamentary transfers. If another Texas court followed that dissent, beneficiaries of the POD or ROS harmed by the change would having standing to sue based on the beneficiary’s “estate in anticipation” to the funds in the account.
Additionally, the majority opinion of the Texarkana case is inconsistent with the cases in other states that recognize an “estate in anticipation” in POD beneficiaries. If another court in Texas agreed with these other cases, a beneficiary would have a cause of action against the agent/attorney-in-fact.
Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm, whose principal office is in Fort Worth, Texas. She lives and practices in Somervell County. If you have questions or concerns, please contact her by email at firstname.lastname@example.org or by phone at 254.797.0211.