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Can an individual IRA accountholder grant a Power of Attorney to a third party?
by Ken Golliher, BOL Guru

Question: Can an individual IRA accountholder grant a Power of Attorney to a third party?

Answer: Yes. Whether a power of attorney is valid for a particular purpose is an issue of state law. The IRS routinely deals with attorneys-in-fact on tax matters and has no special rules for IRAs.

First, check your state statutes. Some say you may not refuse to accept a POA "unreasonably." That holds you to a higher standard if you are attempting to impose restrictions that a judge may not feel are justified. If the POA is durable and the principal is unable (physically or mentally incapacitated) to execute a document that meets your expectations, the attorney-in-fact is in an impossible position. So, again, you need to be reasonable, but you are not required to take inordinate risks.

Second, look for language that reasonably could be interpreted to give the attorney-in-fact power over all deposit accounts. Also, look for language that gives power over income tax matters, as decisions on withdrawals and deposits automatically affect income taxes. (Some banks "require" that the POA mention the IRA, but that may be an example of being "unreasonable" if the principal cannot execute a new document.)

Third, just exactly what is it the attorney-in-fact wants to do? Open the account, make a deposit, make a withdrawal, transfer the account, etc. Is the action sought consistent with their fiduciary powers? For example, if they ask for a distribution in the form of a check payable to the principal, fine. If they want it payable to the attorney-in-fact, not fine. If they want to add or change beneficiaries, they are again stepping over the line. (Adding or changing beneficiaries has a financial effect equal to changing someone's will and an attorney-in-fact cannot do that.)

All POA's should be reviewed by outside counsel prior to acceptance. It is helpful to provide your counsel with a list of the principal's accounts at the time the POA is offered so he or she is aware of IRA's, joint accounts, etc.

First published on 2/17/03

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