One of the reasons we like Charles Schwab as a custodian is that they strive to follow all the rules. Generally speaking, they don’t cut corners. The flip side of this benefit is that Charles Schwab can sometimes be very difficult during a non-standard case.

This can be seen in the multitude of steps required to divide an inherited Roth IRA amongst trust beneficiaries. It can also be seen in Schwab’s rules surrounding durable power of attorneys (DPOAs).

Today, we are going to look at four limitations Schwab imposes on agents under DPOAs and what strategies can be used to work around those limitations.

1. The principal cannot add a Schwab DPOA to an account linked to a Schwab Bank Investor Checking account.

Schwab Bank is a related but independent custodian to Charles Schwab. Schwab Bank offers Investor Checking accounts which can be joined with an existing Charles Schwab brokerage account. These two accounts function like conjoined twins, technically separate but forced to share. You can read more about these features in our article, “Streamline Your Finances with Schwab Checking.”

Alas, Schwab Bank does not accept Schwab DPOAs, and thus linked brokerage accounts must reject them as well.

This policy is made clear on the Schwab Durable Power of Attorney, which is reads (emphasis added):

This Durable Power of Attorney is not permitted on:
• Joint tenant accounts unless all account holders agree to name the same Agent;
• Trust accounts, Organization accounts, or any fiduciary accounts such as Guardianships, Conservatorships, or Estates;
• QRP accounts, Company Retirement Accounts, and i401(k) accounts; or
• Any Schwab brokerage accounts linked to a Schwab Bank Investor Checking^TM account.

While the other restrictions are intuitive based on the account type, the restriction on accounts linked to a Schwab Bank Investor Checking is often a surprise.

The only work around for this limitation is to either not have a linked high-yield investor checking account or use a non-Schwab durable power of attorney. As discussed in “How to Implement a DPOA at Schwab,” a non-Schwab DPOA is one which is drafted by an estate attorney and then activated on your Schwab accounts.

2. Agents cannot open accounts.

By default, Schwab does not let the agent of a durable power of attorney (DPOA) open new accounts for the principal while the principal is still mentally capable. This is true for both Schwab and non-Schwab DPOA documents and is generally still true even if the power is explicitly given to the agent in a non-Schwab DPOA.

Schwab has this protection likely because they are trying to protect you from a malicious DPOA. While this is kindhearted, it is easy to argue that the extra protection is unnecessary. The agent of a Power of Attorney is already legally required to be a fiduciary for the principal. This means that the agent is legally required to act in the principal’s best interest and can be held personally liable for mistakes made in their function as DPOA.

Regardless, Schwab is firm in their rule.

The official workarounds are either 1) providing proof of the account holder’s incapacitation or 2) having the principal sign the account application.

However, unofficially, Schwab has implied that it may be possible to provide them with an explicitly stated and notarized legal document which clearly grants the agent the authority to open accounts even when the principal is not incapacitated. That being said, we have never personally seen this case and cannot vouch for its success rate.

3. Agents cannot designate beneficiaries.

By default, Schwab does not let an agent of a durable power of attorney (DPOA) change beneficiary designations. This is true for both Schwab and non-Schwab DPOA documents.

If the power is explicitly granted (using the initials on a Schwab DPOA or in clear text in an attorney drafted document) and Schwab’s legal team agrees that the power is explicitly granted, then they will normally permit the agent to designate beneficiaries. However, it is worth noting that Schwab is very stingy with this power and is hesitant to agree that it is explicitly granted.

Often, problems arise when the agent of a non-Schwab durable power of attorney is trying to open a new IRA for the principal at Schwab. Even with a doctor’s letter of incapacitation or court document, Schwab will often prevent the agent from putting beneficiary designations on the IRA.

As most incapacitated individuals are older, losing beneficiary designations late in your twilight years is an estate planning disaster. In this way, if Schwab prevents beneficiary designations from being added, it is often in the principal’s best interest to leave the assets where they are rather than move the assets and lose the designations.

While Schwab is fairly unaccommodating in this area, they will provide one option when pressed: Schwab may permit the agent to mirror beneficiary designations (this is what Schwab representatives call it) from an outside custodian onto a new Schwab account.

The process of mirroring beneficiary designations requires a special review, and there is no guarantee that Schwab will approve it. Mirroring beneficiary designations requires four things:

1. The principal must be incapacitated and have a letter proving the incapacitation.
2. The account registration must be identical between the new Schwab account and the original custodian.
3. The agent must provide Schwab with a copy of the principal’s authorization of the beneficiary designations at the original custodian.
4. The principal’s authorization of the beneficiary designations must match the current beneficiary designations on the account.

For the third item in this list, Schwab is ideally looking for a form signed by the principal account holder themselves. If that cannot be found, you should search for any kind of record the original custodian may have for how the current beneficiary designations were set on the account and provide Schwab with that. As a last resort, you may be able to provide a document which simply shows the original account’s beneficiary designations.

If Schwab doesn’t accept this appeal, then you are sadly out of options. But at least this one workaround gives some agents an option of moving to Charles Schwab without ruining their principal’s estate plan.

4. The principal cannot appoint his or her selected agent because they are a financial advisor.

While this does not come up as often for clients, another restriction that Schwab has is that “This form cannot be used to add an Agent or investment advisor using the Schwab Advisor Services Platform.”

Individuals on the Schwab Advisor Services Platform include people like me and my fellow co-workers at Marotta Wealth Management. Schwab wants to make sure that this form is not used to grant authorities to your investment advisor, because indeed this is the wrong form for that. However in the process of preventing that mistake, Schwab makes it difficult for family members of investment advisors to bank with Charles Schwab.

For example, my husband can be my DPOA at Charles Schwab using a Schwab DPOA. However, I cannot be his unless I use a non-Schwab DPOA.

The fix for this is to visit an estate attorney and draft a non-Schwab DPOA which you activate at Charles Schwab.

Concluding Thoughts

In most cases, Schwab’s rules around durable powers of attorney help to protect the principal. However, the same rules can also impede the principal’s agent from performing what is in the principal’s best interest under the fiduciary duty.

It is very akin to the old programming saying, “You can have access or security; pick one.” In the legalities of implementing a durable power of attorney, you can pick only one: granting the agent powers or securing the authority of the principal. Schwab has picked protecting the principal, which, in the Wild Wild West of estate planning, is a reasonable choice.

Photo by Daria Glakteeva on Unsplash. Image has been cropped.