A Power of Attorney is among the commonly executed 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 third party refuses to honor a Power of Attorney? The Lincolnshire estate planning attorneys at Hedeker Law, Ltd. discuss a third party’s duty to honor a Power of Attorney.
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.
Why Might a Third 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 the third-party claiming 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.
- 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. A third party may take a reasonable amount of time to authenticate the document and verify its validity but must then honor your position as the Agent.
Third-Party Protection on an Agent’s Authority
In the State of Illinois, Section 755 ILCS 45/2-8 of the Illinois Power of Attorney Act offers some protection to a third-party who relies on an Agent’s authority, stating in pertinent part as follows:
Any person who acts in good faith reliance on a copy of a document purporting to establish an agency will be fully protected and released to the same extent as though the reliant had dealt directly with the named principal as a fully‑competent person.
Pursuant to that section, however, the third-party can request from the Agent an affidavit or Agent’s Certification and Acceptance of Authority as a way to further protect the third-party and ensure that the POA is legitimate.
Contact Lincolnshire Estate Planning Attorneys
For more information, please join us for a FREE estate planning seminar. If you have additional questions or concerns regarding third-party reliance on a Power of Attorney, contact the experienced Lincolnshire estate planning attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.