Powers of Attorney: Ensuring that third parties honor your power of attorney

A power of attorney (POA) is an essential document of a comprehensive estate plan because it allows your attorney in fact to conduct business on your behalf with third parties.

For a number of reasons, third parties are hesitant to honor POA’s. Third parties are generally unaware as to whether the POA was lawfully executed, forged, revoked, or if the Principal is deceased. Third parties also want to ensure that they are protecting the Principal from any unethical conduct on the part of the attorney in fact. As such, third parties do not want to be held liable for a transaction where the attorney in fact had no legal authority to act.

For example, some financial institutions often refuse to honor POA’s that are older than a year or POA’s that aren’t signed on internal forms. In regards to springing POA’s, powers that don’t become effective until the Principal’s physician certifies that the Principal is incapacitated, the North Carolina Court of Appeals has placed the burden on lenders to request and confirm from the Principal’s physician that he or she is in fact incapacitated. Failure of a lender to confirm the effectiveness of the POA could result in the transaction being invalid.

Other areas where a third party may refuse to honor a POA is if the POA involves a real estate transaction and the POA is not recorded in the office of the Register of Deeds in the county where the real property is located or where the Principal lives. Often refusal is more common when a substantial amount of time has passed since the Principal executed the POA.

In North Carolina, a third party or attorney in fact can protect himself regarding POA’s. A third party can limit its liability by having the attorney in fact sign an affidavit stating that he or she is exercising a power pursuant to a valid POA. Conversely, an attorney in fact can recover attorney fees when a third party unreasonably refuses to recognize a valid POA or seek a court order requiring acceptance of a valid POA.

It is always a good idea to update your POA every three to five years. This will ensure that your attorney in fact will not experience any unreasonable delays when carrying out your wishes for your estate plan and protect you from unscrupulous conduct on the part of your attorney in fact.