Can a Party Refuse to Honor a Power of Attorney?

A Power of Attorney is among the familiar of all estate planning documents. When all goes as planned, a Power of Attorney can be used under a wide range of circumstances and can be used to further numerous estate planning goals. What happens though if a party refuses to honor a Power of Attorney?  The Grand Forks estate planning attorneys at German Law explain your rights as an Agent under a Power of Attorney and what happens if someone challenges that authority.

What Is a Power of Attorney?

At its most basic, a Power of Attorney is a legal document that allows you (referred to as 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 to 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 the state on a business trip.  A limited POA is also frequently used by the parents of a minor child as a way to grant a caregiver the authority to consent to medical care for a child in the event it is needed on an emergency basis. 

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.

Can a Party Refuse to Honor an Agent’s Authority?

Despite the clear intent of the Principal in a POA, a third-party may still refuse to honor the Agent’s authority. Three common explanations for a third-party’s refusal include claims that:

• The POA is stale or expired. A third party may claim the POA is “stale” or expired. A POA does not expire though, unless there is a specific termination date in the document, nor does it become stale. Claiming that a POA was executed too long ago, therefore, is not a valid legal reason to refuse to honor it. Nevertheless, the more time that has passed since the Principal executed the POA, the more likely it is for a third-party to be suspicious. Therefore, it is a good idea to keep your POA up to date by executing a new one every few years. Note that in North Dakota, Section 30.1-30-02. (5-502) of the Uniform Durable Power of Attorney Act specifically states that “All acts done by an attorney in fact pursuant to a durable power of attorney during any period of disability or incapacity of the principal have the same effect and inure to the benefit of and bind the principal and the principal’s successors in interest as if the principal were competent and not disabled. Unless the instrument states a time of termination, the power is exercisable notwithstanding the lapse of time since the execution of the instrument.”
• The third-party requires you to use their own POA form. Some third parties (predominantly banks) want the POA on their form. Legally, they are required to accept any form; however, when executing another one can be easily accomplished it is sometimes quicker to just do so.
• The Agent’s authority is questionable.  A third party may question the authenticity of the POA and may take a reasonable amount of time to authenticate the document and verify its validity but must then honor your position as the Agent.

Contact Grand Forks Estate Planning Attorneys

Please join us for an upcoming FREE seminar. If you have additional questions or concerns about a Power of Attorney, contactthe Grand Forks estate planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.