Raising the hands while reciting the blessing: [1]
Practically, the Chabad custom is to dry the hands, lift them separately to the height of his Peiyos [ears] and only then begin to say the blessing. One is not to lift the hands higher than the Peiyos. [One is to begin the blessing as soon as he raises his hands and is to leave them lifted until the blessing is completed. The hands are to be spread open, with the fingers standing upright, while the hands are raised.[2] One is to be careful that the elbows do not extend behind one’s back upon lifting them.[3]]
[1] Sefer Haminhagim p. 5 [English]; Likkutei Dibburim Likut 23 p. 633; M”A 4:7; M”B 4:9; Ben Ish Chaiy Toldos 4; Kaf Hachaim 4:16 that so is the custom according to Kabala; Derech Chaim 1:6; See Seder Netilas Yadayim 5: “According to Kabala one is to lift his hands while saying the blessing”;
Background:
The M”A [4:7] writes that according to Kabala one is to lift the hands upon reciting the blessing of Al Netilas Yadayim. This is because the idea of Netilas Yadayim is elevation. [Ben Ish Chaiy ibid] Matzas Shmurim writes that one who does not lift his hands while reciting the blessing is included in the statement of the Sages of one who belittles washing hands. [Kaf Hachaim ibid] The custom of the Rebbe Rashab was to lift his hands separately to his Peiyos while reciting the blessing over the morning washing. This was different than his custom regarding washing for bread, in which case he lifted his hands to his heart, not higher, and held them together, not separately. [ibid]
[2] Ben Ish Chaiy ibid; Kaf Hachaim ibid; As according to the Zohar one may not lift his hands for no reason, and hence he should begin the blessing right away. One is not to say the verse of “Seu Yideichem Kodesh” while lifting the hands being one did not yet recite Birchas Hatorah. [Ruach Chaim 5:2]
Other Opinions: The Nesiv Hachaim [on Derech Chaim ibid] notes that Admur omitted this law from his Shulchan Aruch.
[3] Shaar Hakavanos Inyan Birchas Hashachar; Zohar Vayeitzei 154; Ben Ish Chaiy Shmini Hakdama; Sefer Hasichos 1944 p. 43 that the Alter Rebbe was careful in this matter due to the above warning based on Kaballah; However see Ran on Shabbos 10a in name of Rabbeini Chananel that one is to fold his hands behind his back during prayer like a slave before his master.