We had a POA come in and close out an account on behalf of the principal. Our question is that the principal died 2 days prior to the POA coming in and closing the account. We had no knowledge that the principal had passed away at the time of account closing. Do we have any liability since we were unaware of the principal's death at the time and is the POA responsible to the estate?

If you were unaware of death, I'd say you wouldn't be held liable. As far as you knew, the POA was still in effect and you'd have no reason to question it. The POA will definitely have an issue with the estate though, since it's the estate's money!

I'd stay out of it unless you get contacted by legal representation.

Agree. In fact many states have in their statutes relating to powers of attorney language that validates actions of third parties in reliance upon a power of attorney when they have not received notice and are otherwise unaware of the principal's death or incompetence (the latter in connection with a non-durable power of attorney).

The mechanics of how the account was closed may make a lot of difference to the heirs.

If you closed the account by issuing a check payable to the decedent, as noted above, you do not have a problem.

If the attorney-in-fact closed the account by writing a check payable to himself, the heirs may say you were clearly aware of a breach of fiduciary duty when you cashed the check. If you closed the account by issuing a check to the attorney-in-fact, you do have a problem - your records clearly indicated it wasn't his money.

Knowledge, or lack of knoweldge, of the death simply would not be relevant in the last two scenarios.

If the check was written by the AIF payable to himself as an individual, the heirs would have to prove that the bank was aware of the breach, since the check itself does not constitute notice of the breach under the UCC. That's a very fine distinction, admittedly, and I don't think the bank would want to have to defend such a claim.