A limited power of attorney is granted from one person to another with the hope that if the first person is unable to conduct business on their own behalf, the person who is granted the Limited POA can step in. Think of a “pinch hitter” and you’ll get the idea.   You might think that this is a great solution for those who want to help family members with their finances.  In theory, it’s great.  But in practice the Limited POA is close to useless.  I’ll explain by way of example.

I recently received a call from Jane. She is a very nice lady who is trying to help her elderly mother Beth with her finances. Beth is pushing 95 and in decline. She really can’t manage her finances so Jane is trying to step up.

One idea that came up was for Beth to give Jane a limited power of attorney. Jane figured that if Beth granted her the POA she’d be able to conduct business on behalf of her mom without a problem. As you’ll see shortly, Jane was mistaken.

What is a Limited Power of Attorney?

As I mentioned, when you grant someone a POA you give them the authority to conduct business on your behalf but in a very limited way. Those limits largely depend on where you get the document from and (more important) where you use the document.

How do you grant a POA to someone?

If you want to create a limited power of attorney you can either see an attorney or go to court. But these aren’t your only options. You can also get a limited POA document from your brokerage company or bank. This route is attractive for a few very simple reasons.

First, if you get the document from the brokerage firm or bank, it won’t cost you anything. Second, if you create the document at the financial institution where it will be used, you know that they’ll honor it. Third, chances are very good that the only  Limited POA your bank or broker will accept is the document they provide. If you have your lawyer create the Limited POA it may not be honored and therefore be of no use to you anyway.

How Limited is a Limited Power of Attorney?inherit

In most cases, the limited power of attorney provided by the bank or brokerage allows the person receiving the POA the right to buy and sell securities or open accounts. Sometimes, the limited POA will be able to withdraw money for the person they are caring for but not always.

Therein lies the big problem. What use is having a power of attorney if you can’t access funds when the person you are looking after needs it? And it gets worse. If the person passes away, the power of attorney ceases to exist. That means the powers become null and void.

Alternative Solutions

Some people scratch the Limited POA and change the title of the account to joint tenants. This is great because you can also do this for free but there are problems with this approach. If Beth and Jane become joint tenants on the account, Jane has the ability to clean out the account whenever she wants. And even if she isn’t so malevolent, if she is sued or divorced, Beth’s account becomes fair game for Jane’s creditors. Aye carumba!

Another alternative is to create a durable power of attorney. This avoids the problems that joint tenancy creates and it can expand the powers extended to the grantee.

The only downside to this is that the court needs to authorize it which takes time and costs money. Also, you have to make sure the financial institution will honor it. Some will not.

Bottom Line On Limited Power of Attorney

Do your homework. Talk to your bank or brokerage firm. And talk to your lawyer too.  Tell them exactly what you want to accomplish and why. Ask them for the best option. But if you are lucky and the bank or brokerage allows you to withdraw funds the limited POA just might work for you.

Have you been granted a limited power of attorney for a loved one? Was it sufficient?


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