A power of attorney (POA) is one of the most important estate planning documents, allowing a trusted person to handle financial or medical matters on your behalf. However, many people are surprised to learn that banks and financial institutions often refuse to honor them. Understanding why this happens can help you plan more effectively and avoid unnecessary headaches.

Why Do Banks Reject Powers of Attorney?

• Outdated Documents – Many institutions are wary of POAs that were signed years ago. If your document is old, a bank’s legal team may question whether it is still valid or if circumstances have changed.
• Institution-Specific Forms – Some banks require their own POA forms, regardless of whether you have a legally executed one. They may not recognize a general POA unless it includes very specific language.
• Concerns About Fraud or Abuse – Banks are vigilant about preventing financial exploitation. If a POA is presented without clear evidence that the principal (the person who granted the authority) is still competent or consents to its use, the bank may refuse to honor it.
• Improper or Incomplete Execution – If the POA wasn’t properly notarized or lacks required witnesses, institutions may decline to accept it. Each state has different legal requirements, and banks will often err on the side of caution.
• “Springing” POAs and Proof of Incapacity – Some POAs only become effective when a person is declared incapacitated. Banks may require extensive proof of incapacity, such as doctor’s letters or court documentation, before they allow the agent to act.

Why Funding Accounts to a Trust is a Better Alternative

While a power of attorney can be useful, relying on it alone can lead to complications. A more effective strategy is to place your financial accounts into a revocable living trust. Here’s why:

• Immediate Authority – Unlike a POA, which banks may scrutinize or reject, a properly funded trust allows your successor trustee to step in and manage accounts seamlessly if you become incapacitated or pass away.
• Avoids Probate – Trust assets bypass the probate process, ensuring a smoother transition to your beneficiaries without court involvement.
• Reduced Risk of Rejection – Banks and financial institutions are generally more accepting of trusts than POAs, as they offer clear legal authority to manage assets.
• More Control – A trust allows you to specify exactly how and when assets should be used, reducing the potential for disputes or mismanagement.

How to Prevent Issues with Your POA and Trust

• Keep It Updated – Review your POA and trust every few years to ensure they reflect current laws and your wishes.
• Use Durable POAs – A “durable” POA remains valid even if you become incapacitated, which can prevent some banks from rejecting it.
• Fund Your Trust Properly – Make sure your financial accounts, real estate, and other assets are titled in the name of your trust.
• Consult an Estate Planning Attorney – An experienced firm, like Wagon Legacy, can draft a POA and trust that work together to provide seamless financial management.

Having a power of attorney is essential, but making sure it will actually work when needed is just as important. Even better, funding your accounts to a trust can eliminate many of the obstacles that come with using a POA. If you have questions about your POA, trust, or estate plan, our team is here to help.

Need to Review Your Estate Plan?

Contact our office today at 714-451-5766 to ensure your documents are up-to-date and that your assets are properly protected!