Imagine the scenario: You are hospitalized after a terrible car crash and taking medicine that, although it will make you better, has the side effect of making you quite mentally confused and unable to handle your own affairs. Your bills need to be paid, your taxes need to be filed, and your cat needs to be fed.

While your life partner or parent is more than willing to do all of these things for you, legally speaking, this loving family member is only able to feed the cat. And while Fluffy will be well-fed and cared for, if your recovery takes longer than anyone expected, your electricity might get turned off, your mortgage company may foreclose on your house, and the IRS might come after you for tax evasion.

To avoid this unfortunate scenario, there exists a document whereby you can legally empower that loving family member to be you. This document is called a Durable Power of Attorney or DPOA.

Durable Powers of Attorney must be drafted in advance of their need. Once you are mentally incapacitated, you no longer have the legal ability to grant someone else the authority to be you.

A well-drafted Power of Attorney spells out a list of powers which “the principal” (the person who is granting these powers) is bestowing upon “the agent” or “the attorney-in-fact” (the person who is receiving the powers).

Some powers of attorney are “springing,” which means that they are only valid when combined with a doctor’s note saying you are mentally incapable. Other powers of attorney are live and active the moment they are signed.

The “durable” part of “Durable Power of Attorney” declares that these powers persist even beyond the incapacitation of the principal. Without this, your own incapacitation would revoke previously created powers of attorney.

The agent of a Power of Attorney is required to be a fiduciary to the principal. They are legally required to act in the principal’s best interest. Furthermore, the agent can be held personally liable for DPOA mistakes.

Generally speaking, Charles Schwab has two methodologies of implementing a durable power of attorney. The first is that you can use a Schwab Durable Power of Attorney. The second is that you can use an estate attorney drafted Durable Power of Attorney. Here’s how those two paths work.

1. Schwab Durable Power of Attorney

The first methodology is to implement a Durable Power of Attorney with Schwab directly using Schwab’s form. For example, this is their Durable Power of Attorney For All States Except New York and Pennsylvania .

This form requires a notarized signature from the principal which is also witnessed by two disinterested persons. It also requires a notarized signature for the appointed agent.

On the form are two different sections where the principal can initial to grant powers to the appointed agent. The first section has required powers and the second section has optional powers which the principal can additionally grant.

The required powers are (emphasis added):

• Access account and place trades—Buy, sell, sell short, exchange, convert, tender, or otherwise acquire or dispose of all types of securities and other investments, including the right to borrow on margin and conduct options transactions to whatever extent this account is approved for these features.
• Withdraw money—Remove assets from this account by any means available for this account type and regardless of any tax consequences. Withdrawn assets may be distributed to you or to any third party, including your Agent.
• Move money out of this account—This includes making rollovers, Roth IRA conversions, IRA recharacterizations, or other transfers of assets out of this account.
• Modify or close account—Modify or close the account named on this form. Modify any address for my profile. Additional documentation will be required to provide proof of the account holder’s incapacitation.
• Open accounts—Use your taxpayer ID number to open any number of new accounts of any type, including managed accounts, for your benefit. Additional documentation will be required to provide proof of the account holder’s incapacitation.
• Authorized Check User Power of Attorney (“Authorized Check User”)—Grant unlimited authority to write checks on your account, including checks made payable to any third party and/or to your Agent.
• Tax powers—Make, execute, present, and modify any tax forms with respect to financial matters related to your account (including, but not limited to, IRS Forms W-8 and W-9 and other certifications relating to your taxpayer ID number, backup withholding status, foreign status, and/or tax residency). Make any election available or as required under federal, state, local, or foreign tax law related to your account or any accounts your Agent may open, to the extent permitted by the applicable taxing authority.
• Acting individually/severally—By initialing above and signing this Durable Power of Attorney form, you are agreeing that if you appoint more than one Durable Power of Attorney, they may each exercise their authority individually and not jointly.

All of these powers must be granted to use this form. If you are hoping to empower your agent with only some of these powers, then this form will not work for you.

You can also see that the agent under this DPOA would not be able to open accounts for the principal at Charles Schwab unless the principal is proved incapacitated. Schwab strictly enforces this rule. This means if you are activating a power of attorney because you are hoping to delegate your finances, you may still be required for new account opens.

Additional optional powers also available are (emphasis added):

By initialing here, I authorize my Agent to name others as beneficiaries. I wish to authorize my Agent to execute or change a beneficiary designation on my behalf. I understand that for retirement accounts, the Agent will not be permitted to execute a beneficiary designation in favor of himself or herself.

Initialing this box will authorize the agent to change beneficiary designations, including the authority to name themselves, even if the agent is not an ancestor, spouse, or descendant. It is recommended that the account holder and agent consult with legal counsel regarding the grant and exercise of this authority as it may impact estate planning objectives. It is the agent’s responsibility to comply with applicable state law.

By initialing here, I authorize my Agent to delegate all powers to others. I understand that I am delegating all the powers that I have granted to my Agent (or any portion of such powers as determined by my Agent) to any third party. I understand that delegated powers include the ability to hire or fire an investment advisor.

These three optional powers can be very important.

The first two pertain to designated beneficiary designations and differ only in whether the agent can designate themselves as a beneficiary on the principal’s account.

You might think, “My agent doesn’t need to set beneficiary designations,” but I caution you to think more critically about this matter. We had a client where an adult child was DPOA for both parents. The father died. We and the DPOA were helping the mother, who was mentally incapacitated with dementia, progress through the her spouse’s estate process. When it came time for the mother to perform a Spousal Rollover on her husband’s IRA, Schwab required that she open a individual retirement account because she did not have one yet. However, Schwab would not allow the DPOA to put designated beneficiaries on the new individual account because the DPOA did not have the authority to name beneficiaries or execute a beneficiary designation including themselves.

The DPOA’s only options were either to leave the IRA in the deceased father’s name forever (because his IRA had the appropriate contingent beneficiary designations) or to perform the spousal rollover but know that the IRA will be processed by probate upon the death of the mother. Neither of these are a good option and when you need a well-drafted Durable Power of Attorney, it is too late to make changes to it.

The third power gives the agent the authority to delegate powers to others. This box is the one that gives an agent the authority to hire a financial advisor for the principal’s accounts and would be necessary if you want your DPOA to be able to hire us directly for example.

2. Non-Schwab Durable Power of Attorney

The second methodology is that you can take a Durable Power of Attorney (DPOA) drafted by an estate attorney and apply it to an existing Schwab account. The form which activates an external DPOA is called an “Agreement and Affidavit for Non-Schwab Durable Power of Attorney .”

The form requires a notarized signature from the appointed agent. The principal does not need to sign, presumably because they have already signed and executed the DPOA with an attorney. If the DPOA is springing, a doctor’s note is likely also required.

After receiving a completed, signed, and notarized form, Schwab reviews the non-Schwab power of attorney document to see which powers the principal has granted the agent. From this, they decide whether the principal has the authority to do various actions at Charles Schwab.

Schwab will make no promises about what kind of language they are looking for on a non-Schwab DPOA, but I can tell you from experience that they are ruthless in this analysis. They will “go over the document with a fine tooth comb,” as one Schwab representative described it, and nitpick all the language to see if there is an interpretation where the powers of the DPOA are limited.

While Schwab has explicitly said to me that they are not sure if they would even accept their own DPOA form’s language if they saw it in a non-Schwab DPOA, the Schwab form can serve as a checklist when you are taking it to your estate attorney. Consider having your attorney mention each of those powers explicitly, describing what, if any, powers you want to grant in those areas.

Estate planning is a task which is never useful until it is too late to do it. If you haven’t made a durable power of attorney yet, consider whether there is a person you would feel comfortable granting powers under a Schwab DPOA today. If you are a client of ours, we have notary services available and would be happy to assist with Paperwork Preparation.

Photo by Lum3n on Pexels. Image has been cropped.