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What Happens If a Third Party Won't Honor a Power of Attorney?

Power of Attorney

Power of AttorneyA power of attorney is one of the most commonly used legal documents.  At its most basic, a Power of Attorney is a legal document that allows you (the “Principal”) to grant another person (the “Agent”) the authority to act on your behalf in legal matters and transactions.  The type and extent of the legal authority you grant to an Agent depends on the type of POA you create.

General vs. Limited Power of Attorney

A POA can be either general or limited. A general POA grants your Agent almost unlimited power to act on your behalf. This means that your Agent may be able to do things such as withdraw funds from your financial accounts, sell property and assets owned by you, and even enter into contracts in your name.

A limited POA only grants your Agent the limited, and specific, authority enumerated in the POA. For example, you might grant an Agent the specific power of attorney to act on your behalf during the sale of your vehicle while you are out of state on a business trip.  

Durable Power of Attorney

Historically, the authority granted to an Agent in a POA automatically terminated upon the death or incapacity of the Principal.  Because the possibility of incapacity is actually a common motivation for creating a POA, the concept of a “durable” POA evolved.  When a POA is made durable it simply means that the Agent’s authority survives the incapacity of the Principal.

Must a Third Party Honor an Agent’s Authority?

State laws govern most aspects of a power of attorney, such as the language required to create a POA, the types recognized in the state, and the extent of an Agent’s authority.  Most states impose some limits on an Agent’s authority even under a general POA.  Beyond those legal limits, however, the law makes it clear that a third party must legally honor an Agent’s authority under a valid power of attorney.  Despite this, third parties do sometimes refuse to honor an Agent’s authority for several common reasons, including:

  • Stale/Expired - a third party may claim the POA is “stale” or expired. A POA does not expire unless there is a specific termination date in the document.  A POA does not become stale either. Thus, claiming that a POA was executed too long ago is not a valid legal for refusal to honor it.
  • Wrong form – some third parties (predominantly financial institutions) want the POA on their form.  Financial institutions are required to accept any legally valid form; however, institutional policies often require signature on an internal document to mitigate potential liability to that institution. Thus, if executing an institutional form can be easily accomplished, and serves the same purpose as your POA, then it is sometimes quicker to just do so.
  • Questioning power - a third party may question the authenticity of the POA.  Authenticity often gets called into question on older documents, or documents that were prepared by someone other than a licensed attorney.

In short, unless you are attempting to use the POA to do something that is expressly prohibited by law, a third party is legally required to honor your authority.  However, financial institutions also have the right to put policies in place to mitigate exposure to liability; therefore, some Agents may receive pushback when submitting a POA to act on your behalf.  If a third party refuses to accept a legally executed POA, consult with an estate planning attorney about your legal options.

Contact Estate Planning Attorneys

For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about a third party’s refusal to honor your Agent authority under a power of attorney, contact the experienced estate planning attorneys at Morris Hall PLLC by calling 888-222-1328 to schedule your appointment today.

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