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Can a Power of Attorney be Refused?

A power of attorney, or POA, is one of the most commonly used legal documents because of the numerous purposes a POA can serve. At some point in your life you will likely execute a POA, making you the “Principal” as well as be appointed as an “Agent” under a power of attorney executed by someone else. Considering how often POAs are used you might think that the authority of an Agent under a POA is never questioned; however, the truth is that third parties refuse to honor the authority of an Agent under a POA with some frequency.  Banks, for example, are notorious for refusing to honor, or at least questioning, the authority of an Agent when presented with a power of attorney. If you have been appointed as an Agent under a valid POA you need to know whether a third party can legally refuse to honor a power of attorney, and, if so, under what conditions.

What Is a Power of Attorney?

A power of attorney is a legal agreement whereby the Principal (the person granting authority) grants authority to an Agent to act on behalf of the Principal in legal matters. The extent of the authority granted to an Agent by a Principal will depend on the type of POA the Principal executed. Under a general POA an Agent has virtually unfettered authority to act, meaning the Agent can use the POA to do things such as withdraw funds from the Principal’s bank account, enter into a contract in the Principal’s name, and even sell assets owned by the Principal. On the other hand, an Agent with a limited, or special, POA only has the authority specifically enumerated in the POA agreement. A parent, for instance, might grant a caregiver a limited POA that allows the caregiver (Agent) to consent to medical treatment for a minor child in the parent’s (Principal’s) absence. In addition, because the authority granted under a traditional POA terminated upon the death or incapacity of the Principal, the “durable” power of attorney was created. An Agent’s authority under a “durable power of attorney” survives the incapacity of the Principal.

How an Agent Uses the Authority Granted in a POA

Once an Agent has been granted authority under a POA, using that authority should be relatively simple. Legally, a POA gives the Agent the authority to act on behalf of the Principal. Consequently, all an Agent should have to do is provide a third party with proof of the Agent’ authority by providing an original, or certified copy, of the POA agreement in order to exercise the Agent’s authority. Sometimes, however, it is not quite that easy to use the authority granted by a POA.

Common Reasons for Refusing to Honor a POA

Despite the clear authority granted to an Agent in a POA, third parties (particularly banks and other financial institutions) sometimes refuse to honor the Agent’s authority. Some of the most common reasons given by third parties include:

  • The POA is “old” – a very common excuse given by third parties for refusing to honor a POA is that the authority granted therein is “old” because the agreement was executed some time ago. Legally, this is not a valid reason to refuse to honor the POA; however, because trying to use an old POA so often leads to problems, it is a good idea to have the Principal update the POA every three to five years just to avoid problems.
  • Not on the proper form – financial institutions, in particular, often refuse to honor a POA if it is not on their own POA form. Legally, a third party usually is required to accept anyvalid POA; however, if the Principal is available it is often easier to just execute a new POA on the third party’s form than to argue the issue. Of course, you should have your estate planning attorney review the form before agreeing to sign it though if you are the Principal.
  • No proof of incapacity – if the POA is a “springing POA” it means the Agent’s authority only “springs” into action upon the occurrence of a triggering event, usually the incapacity of the Principal. Sometimes, therefore, a third party may question whether the event has occurred. In this case, you may need a letter from a physician declaring the Principal to be incapacitated.

Although third parties do sometimes refuse to honor an Agent’s authority under a POA agreement, in most cases that refusal is not legal. If you find yourself facing a refusal, that is not easily resolved, you may need to seek a court order that will force the third party to honor your authority. In that case, the law allows you to collect attorney’s fees if the third party unreasonably refused to accept the POA. It is a good idea to seek the legal counsel of an Estate Planning or Elder Law Attorney.

Read more related articles at:

Power of Attorney: who has the power?

What to Do When the Bank Refuses a Financial POA Document

Also, read one of our previous Blogs at:

The Wrong Power of Attorney Could Lead to a Bad Outcome

Click here to check out our On Demand Video about Estate Planning.

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