Power of attorney when a person passes away
Something that we see often is a misunderstanding of what a power of attorney is able to do once the person has passed away. It is very common for people to believe that they have the same authority to handle the deceased’s financial affairs when they pass away as they did when the person was alive.
However, this is not the case as Power of attorney becomes invalid upon a person’s death. You should not continue to access and handle the deceased’s financial and legal affairs as you did when they were alive. Once a person dies authority over their financial assets becomes the responsibility of the executor of their estate.
I have seen several cases where the executor has neglected to inform banks and building societies of the person’s death and the power of attorney has continued to use the funds in the account as they did when the person was alive. It cannot be stressed enough that the person with power of attorney should not continue to access and withdraw money from a deceased persons account. This action can result in serious consequences for both the person accessing the accounts and the executor of the estate.
If the power of attorney is also the executor of the estate there is a misconception that they do not need to follow the same procedures as an executor that did not have power of attorney, but that is not the case. It is the executor’s duty to inform the financial institutions of the person’s death so that they can take the necessary actions, this includes freezing the deceased’s bank accounts that are subject to probate.
A reason I often hear for not informing the banks and buildings societies is to purposely prevent the accounts being frozen. Although this is often done with the best intentions for example, in order to pay for funeral expenses, utilities or estate administration costs, and also to avoid any cross over between the executors personal finances and the estates expenses; this is not correct and should not be done. Even with good intentions you should not spend another person’s money without their consent, as Power of attorney becomes invalid upon death you no longer have their consent and therefore the legal authority to handle their money.
It is the executor’s duty to inform any institutions where the deceased held assets as soon as possible. Once informed banks and building societies will freeze the deceased’s accounts stopping any money from going in or out. Funeral expenses are the only costs that can be released from a frozen account, if you provide the invoice to the bank, they will arrange for it to be paid using the money in the deceased’s account.
Some accounts, depending on the circumstances, may not require probate in order for the funds to be released. That does not mean you should not inform the bank of the death and continue to use the account for the estate. The bank will close the account and the funds it held should be collected into an executor account that is used specifically to hold the deceased’s liquid assets. This money can be accessed by the executor to cover the estates expenses.
When all of the deceased’s accounts are frozen the executor may not have access to any of the estates funds to cover expenses that arise and may end up paying for certain necessities themselves. An executor can claim back money they have paid out of their own pocket that was used to protect or benefit the estate once there are liquid assets available. This may seem inconvenient in comparison to directly using the deceased’s account however following the correct procedure reduces the risk of the executor being accused of mishandling the deceased’s money.
If as power of attorney, you were paying utility bills out of the deceased’s account, or they had bills coming out as a direct debit you will need to rearrange how these payments are made. An Executor can temporarily take over the payments themselves whilst the estate is subject to probate and reclaim the costs back from the estate once liquid assets are available. Alternatively, some utility companies will have a system in place that allows services to continue to be supplied and the outstanding costs to be settled once probate has been granted.
Something else we see quite often is executors using their power of attorney to remove a lump sum out the deceased’s bank account before they contact the bank to have the accounts frozen. The reason I often hear for doing this is so the executor has access to a pot of cash that they can use to pay bills and other costs whilst the rest of the assets are frozen, however doing this can have serious consequences later on. If a beneficiary was to ever question how the deceased’s estate and assets were being handle this transaction could raise some serious and uncomfortable questions for the executor. If it cannot be proved that all of that money was used to benefit the estate the executor may be forced to pay it back to the estate out of their own money.