Living Trust vs Power of Attorney? The answer may surprise you. In order to create a comprehensive estate plan, you actually need both. Estate planning is much more than simply transferring your assets to your loved ones when you die. Although both a living trust and a power of attorney essentially provide the same benefit, a way to manage your affairs when you are incapacitated, most comprehensive estate plans include both.
A living trust controls not only the management of your assets if you ever become incapacitated, but it also addresses the distribution of your assets after your death. With a living trust, you must re-title your assets to your living trust in order for it to become effective. The living trust is meant to give your agent, referred to as the “trustee,” the authority necessary to manage all of the assets you place in the trust. What a living trust does not do, is give your trustee authority over any of your assets that are not included in your living trust.
What happens when your trustee realizes, after your incapacity, that you failed to transfer some of your assets to your living trust. Not to mention all of the assets that were intentionally left out, such as retirement accounts, annuities, and Social Security benefits. How will your agent manage any of these assets for you, upon your incapacity? The living trust does not give your trustee the power to manage assets not titled in the name of, or assigned the trust. This is where the durable power of attorney becomes necessary.
If you also include a Durable Power of Attorney in your estate plan, your agent will have the authority to manage the remaining assets, including those you unintentionally left out of your trust, as well as your annuities, retirement accounts and social security funds. You can also control the extent of your agent’s powers over your assets.
A general power of attorney gives broad power to the agent relating to certain categories of decisions, such as legal, financial or business decisions. A limited power of attorney can be created for the specific purpose of allowing someone to make decisions for you, only as to a particular activity, such as selling your real property when you are away, or making investment decisions in the event you cannot. Another example would be creating a power of attorney to allow a business partner to use specific assets for the benefit of your business if you become incapacitated. If you own rental property, for instance, your agent can be given the authority to handle all aspects of managing that property. Health care or medical powers of attorney allow another person to make medical decisions in the event of your incapacity - also a limited power of attorney.
Comprehensive estate planning should include both a Living Trust and a Power of Attorney. Your agent should be aware of the relationship between these two documents in order to know which document should be presented when attempting to manage your affairs in the event of your incapacity.
If you have questions regarding trusts or powers of attorney, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.