Top Five Reasons Banks Won’t Accept a Power of Attorney and What You Can Do About It

Q. My aunt signed a Power of Attorney naming her son, my cousin Andy, as her POA. When Andy took it to the bank, he was told that the document had to be on the bank’s form to be valid. This happened in Texas, but I’m concerned that the same thing could happen anywhere. What can be done if a bank refuses to accept a POA, and what can be done to prevent it from happening?

A. There’s no shortage of stories about banks and financial institutions refusing to honor Power of Attorney (POA) documents (and yes, a POA is always a document, never a person; the person named in the POA document who is authorized to act in accordance with the terms of the POA document is called the agent or attorney in factmost banks and even some attorneys these days incorrectly call this person the POA, but this is never accurate, as the POA is always a document). To avoid ending up in a situation like your cousin, it’s important to understand why financial institutions might not accept a POA and what you can do to increase the chances that they will. By the way, when you sign a POA, you can terminate it at any time, and it’s automatically terminated when you die.

Why Banks Require Power of Attorney Documents

Banks, credit unions, and other financial institutions take their obligation to protect customers and their privacy seriously. Banks are also supposed to do what they can to protect senior customers from potential elder financial exploitation. So before giving anyone access to a customer’s account, they want to ensure that the necessary legal prerequisites are met. This means confirming that someone has been legally named as an agent under a POA or as a court-appointed conservator.

Even if your loved one has signed a legal document naming you as their agent and giving you the power to make financial transactions on their behalf, you can’t expect their bank to take your word for it. You’ll need to provide a genuine, valid, and still-in-effect POA document to the financial institution that specifically give you the power to do whatever it is you’re trying to do. But even when you do present such a document, the bank may still not accept it. When that happens, what can you do?

Many don’t realize that there can be legal consequences if a bank wrongfully refuses to accept a valid POA. In several states, including Virginia and Maryland, statutes have been passed requiring that banks accept a Power of Attorney under certain circumstances. In Virginia, a bank must accept a notarized Power of Attorney unless a statutory exception applies. Unfortunately, one very broad statutory exception is that a bank is not required to accept a Power of Attorney if it believes in good faith that the agent does not have the authority specified in the document or that the agent has been relieved of his authority.

Five Common Reasons Why Banks Won’t Accept a Power of Attorney

To delve deeper into what was described above, there are a variety of reasons why banks might reject a POA. Here are the five most common ones:

1. The bank is not sure that the POA is valid: To be valid, a POA needs to be signed and typically needs to be notarized. In some states, there also needs to be a witness or two witnesses’ signature(s) on the document. To ensure that a POA is valid, it is vital to go to an experienced estate planning attorney, such as the attorneys at the Farr Law Firm, to get your documents in order. If you or your loved ones download a fill-in-the-blank power of attorney document online, it might not be valid (or might lack certain critical powers that are needed) and could cause huge headaches.
2. The POA isn’t durable: If you’re trying to access your parents’ or loved ones’ accounts because they are no longer mentally competent, you won’t be able to do so unless the POA is durable. A durable POA is one that remains in effect even if the person who created the document becomes incapacitated temporarily or permanently. Every Power of Attorney done by a lawyer as part of your estate planning will be durable, even if it does not have the word durable” in the title. A well-drafted and comprehensive general durable POA (the type you’re only likely to get from an experienced Elder Law attorney) will allow your agent to perform almost any act that you can, such as opening and closing bank accounts, paying your bills, selling your cars, selling your real estate, making unlimited gifts in connection with Medicaid asset protection, and otherwise managing all of your legal and financial affairs. If the POA isn’t durable (and some banks will erroneously assume it is not durable if the word durable is not in the title) and your parents are no longer competent, you no longer have the power to manage their finances for them.
3. The POA is “stale”: Some banks can be reluctant to accept so-called “stale” POA documents that were drafted years ago. The fear is that new documents could have been drafted since then, and the banks don’t want to hand over access to customers’ accounts to the wrong people. Many banks will simply not accept a POA that is more than three years old because they assume it might have been superseded or revoked. Some banks will not accept a POA that is more than one year old for the same reason. Be sure to update your POA at least every three years, so it accurately reflects your wishes and does not become stale.
4. The agent doesn’t have the authority to do what they’re trying to do: A financial institution is not the link to allow an agent to act unless the act in question is specifically authorized in the POA document. This is why good estate planning and Elder Law attorneys draft your POA very broadly and specifically enumerate every conceivable power you would want to give your agent.
5. It’s a “springing” POA: A “springing” POA is one that becomes effective (“springs” into effect) only when a specified event occurs, typically when you become incapacitated as determined by one or two physicians or by one physician and a licensed clinical psychologist. Many people like the idea of a springing POA when they first hear about it because they want to control their situation and circumstances for as long as possible. After all, why should you hand over responsibility for your legal and financial affairs while you’re still able to handle them yourself? While that makes sense at first glance, significant problems can arise over the definition of “incapacitated,” and significant differences of opinion can arise over whether you are in fact “incapacitated.”

With a “springing” POA, the banker or other financial entity might not accept the agent’s authority, even if a physician(s) signs a letter stating that you are unable to make decisions for yourself. The institution might want some confirmation that the signatures of the physician(s) are genuine, and maybe even some reassurance that the physicians have made the correct diagnosis, or the institution might even question whether the alleged incapacity is permanent or whether perhaps you have gotten better since the doctor signed the letter of incapacity.

How to Avoid Issues with Getting a POA Accepted

To be an effective planning tool, a POA has to be accepted by the bank, broker, or other third party to whom it is tendered. If the bank won’t accept the document, the agent should get the drafting attorney involved to write a letter to the bank threatening litigation if the bank continues to refuse to accept the power of attorney. Usually this works, but if this does not work, then an agent will be forced to either go to court against the bank to try to force the bank to accept the POA, or to go to court to get the incapacitated person declared to be legally incapacitated in order to obtain authority to manage the principal’s financial affairs through a court-ordered conservatorship, thus beginning the process of lifetime probate, which the POA was designed to avoid.

How to Head Off POA Problems Before They Happen

Before you run into trouble with a bank rejecting a POA during an intensive caregiving time, you and your loved one may want to visit the bank while everyone is healthy and doing well. You can ask that the bank put the POA on file and double-check that it meets the bank’s requirements for approval.

When to Escalate the Issue if a Bank Refuses Your POA

If you present a valid POA and are still being asked for additional information by the bank, it may be part of their internal policy or a legal requirement. For example, if the POA doesn’t take effect until the principal is incapacitated, as described above, the agent may need a doctor to certify that the POA maker is unable to handle his or her own affairs.

However, even if the bank says they want the account holder to use one of the bank’s POA forms, they still cannot reject a POA that is legally effective and has the correct language giving the agent the right to conduct banking transactions for the principal.

Your attorney can assist with communicating with bank counsel or other bank representatives. Your attorney may also formally record the document in the county and present the certified copy of it to the bank with an opinion letter verifying the validity of the POA.

Why Every Adult Needs a Power of Attorney

Whether or not you believe you will be sick or unable to make important decisions someday, you never know what can happen or when it will happen. That’s why every adult should have both a Financial POA and an Advance Medicaid Directive (which includes a Medical POA) in place. Signing these documents is called incapacity planning and is an integral part of any comprehensive estate planning. POAs offer the peace of mind that someone you appoint can step in if and when needed to handle your legal and financial affairs and health care decisions. If you have not done incapacity planning or estate planning yourself, or if you have a loved one who has not done it, the time to plan is now. Please contact us at any time to make an appointment:

Power of Attorney Lawyer Fairfax: 703-691-1888
Power of Attorney Lawyer Fredericksburg: 540-479-1435
Power of Attorney Lawyer Rockville: 301-519-8041
Power of Attorney Lawyer DC: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.