Can a Bank Reject a Valid Power of Attorney?

NB: The following post reflects old law. Effective September 1, 2017, the Estates Code requires financial institutions to accept powers of attorney unless one or more enumerated grounds for refusal exist. See Texas Estates Code Section 751.201.

Every adult should have a durable power of attorney.

A durable power of attorney allows you to appoint someone you trust to engage is specified business, financial and legal transactions on your behalf. It’s called durable because it does not terminate if you become incapacitated.

If you become incapacitated and do not have a durable power of attorney, a guardianship may be necessary to allow someone to manage your financial affairs.  The goal of a power of attorney statute is to reduce the need for guardianship proceedings by allowing people to plan ahead for their incapacity.

Ideally, validly executed powers of attorney should be honored by all financial institutions. In practice, however, they are routinely rejected.

For example, a colleague recently told me that a bank rejected her client’s power of because two months had elapsed since the client had signed it and the financial institution argued it was “stale” even though the power of attorney had no termination date.

It made me wonder what would have happened had the client been incapacitated and unable to sign another power of attorney. In fact, it’s typically the principal’s incapacity that causes an agent to use a power of attorney.

There is no statute in Texas that requires a financial institution to accept a validly executed power of attorney or penalizes it for failing to do so. So sometimes, out of the abundance of caution, financial institutions refuse to accept a power of attorney.

The fact that powers of attorney are sometimes rejected is why many attorneys recommend revocable trust-based plans rather than Wills. Although financial institutions may reject an agents’ authority under powers of attorney, they are accustomed to dealing with trustees and successor trustees.

To remedy this problem, the Real Estate, Probate, and Trust Law section of the Texas Bar recently proposed amendments to the power of attorney statute would require financial institutions to accept valid powers of attorney within a reasonable period of time unless some specified exclusions exist, such as actual knowledge that the agent’s authority has been terminated or when financial abuse is suspected, and impose penalties for failing to accept a valid powers of attorney.

Similar changes have been proposed before, so there is no guarantee that they will become law.

In the meantime, it is probably a good idea to check with your financial institution about whether they have any special form powers of attorney they want you to sign to ensure your agents will not run into hurdles if you require them to act on your behalf.