Proper Parameters for an Agent Account
by Mary Beth Guard, BOL Guru
Question: We have an account set up as an agent account. The son has appointed his mother as agent on his account. The disclosure that we have says that the agent can make deposits and withdrawals to the account. She has been transferring $ from the account to hers via telephone transfer. To my knowledge there are no stipulations on the account that says she can't do this. My concern in that I am not thinking this through clearly. Of course our banks have their own ways of determining who can transfer money from one account to another account. I am trying to write a procedure and find it difficult to make a decision regarding the agent account.
Answer: Typically, an agent is someone who conducts transactions on behalf of the person they represent. If the agent conducts transactions that are for the agent's benefit, rather than the principal's, they are said to be breaching their fiduciary duty to the principal.
In this case, if your agreement with the customer says that the agent can make deposits and withdrawals, and it does not limit the methods for making withdrawals, an argument could be made that the transactions the mother made were permissible.
I think a stronger argument could be made, however, that a "transfer" is something different from a "withdrawal". And I would be concerned about UCC Section 3-307, which spells out the circumstances under which a financial institution will be deemed to be on notice of breach of fiduciary duty. When the mother transferred funds from the son's account to her own account, she may have been breaching her fiduciary duty.
I advocate a very direct approach, spelling out in the deposit agreement precisely what an agent or authorized signer may or may not do. The agent should be authorized to write checks on the account, make deposits. Determine whether you would want the agent to be able to have a debit card or ATM card on the account. The contract could specifically say whether or not the agent can make transfers.
The bottom line is that you want the account to function in a manner that corresponds to your customer's wishes.
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