Do I Need a Power of Attorney and a Living Trust?
A living trust is a document that is generally used to help assets avoid probate. It is used to manage assets, while securing them in a trust, while you are still alive. It also can designate an individual to manage your property once you have passed away.
Living trusts are generally used for individuals who have complex situations. This could include having a substantial amount of assets, having a blended family, or many other situations. Living trusts are also recommended for single individuals, because it allows their final wishes to be recognized and fulfilled through the use of beneficiaries.
A durable power of attorney, sometimes referred to as a durable power of attorney for asset management, is a document used to appoint someone to act in your place. It grants them control over your financial and business affairs.
However, this document only goes into effect if you become incapacitate. A durable power of attorney can grant a wide variety of rights to your trustee (also known as your agent). It is generally used to provide continuity in asset management and finances.
When drafting your living will, your estate attorney might suggest that a durable power of attorney be drafted at the same time. However, at first glance, you may be confused as to why you need to file both of these documents. Is your attorney sampling filing more paperwork than is necessary?
Fortunately, that is not the case. In reality, you do need to have both of these documents created. Having both a living will and a power of attorney allows you to have greater control of your assets, for a few reasons.
Your Trustee Has No Control over Assets Not Included in Your Trust
Your living trust only gives your trustee authority over the assets that are put into your trust. However, by making them (or someone else) a durable power of attorney, you can give them some limited authority to assets that are not in your trust. This is an important power for them to have.
If you are incapacitated, or out of the country, a durable power of attorney allows your trustee to change the title of items and put them into your trust. If you forget to put an asset into your trust, or decide to add in a new asset for any reason, your power of attorney can do it quickly and without any hassle. An additional reason is that most people do not put all of their belongings into a trust.
They simple put assets that are expensive to put through probate, like real estate. Items like personal checking or savings accounts are rarely put into a living trust. By creating a durable power of attorney, you are giving your trustee the option to make deposits and pay bills from your checking account, or collect your government benefits.
Having Both Documents is Simply Convenient
Your living trust gives authority to your trustee to control and manage your assets. In theory, it would be the only document that your trustee needed to provide to gain access to your assets. However, there are still some institutions and individuals who are not familiar with trust laws and provisions. Having a durable power of attorney document as well can make these situations easier.
Instead of trying to explain what a living trust is, and what powers are granted in a living will, the power of attorney document can be shown. Most people recognize and understand what a power of attorney does. This is not necessarily a guarantee, since there are some financial institutions that do not recognize powers of attorney either.
A Power of Attorney Can Sign Tax Returns
A power of attorney has the authority to sign tax returns. This is a privilege that cannot be given through your living trust. There isn’t a specific reason why this power cannot be granted in a living trust, it is simply one of the restrictions.
However, having the ability to sign and file tax returns is an important authority to have, especially if you become incapacitated, or are simply unable to file your tax return yourself. It is especially important for older individuals, who may have difficulty filing their tax returns due to medical problems. This can give you peace of mind in knowing that your tax documents will be taken care of in an appropriate, and legal manner.
A Power of Attorney Has Other Benefits
Granting your trustee a power of attorney can also give them other rights. They can conduct business and banking transactions for you. They can borrow money in your name. They can buy real estate in your name, as well as manage and sell existing real estate. They can set up health care payments, if needed.
They can handle insurance and legal claims, which is important in case you become incapacitated. They can also make donations and gifts in your name. These are a few of the privileges that a power of attorney has, but they are also important. You should make sure that you know what powers you are giving someone before you sign paperwork, because you might not be able to reverse their actions if they do something against your wishes.
Deciding on having a living trust, a power of attorney, or both can be a difficult decision. It is also a personal decision, which is affected by many different variables. You should consider what privileges are granted by a living trust, and what privileges are granted by a power of attorney. It’s also important to remember that you do not have to grant both of these privileges to the same person.
If you are still confused about the difference between a living trust and a power of attorney, consider talking to an estate attorney. Talking to a professional is one of the best ways to help figure out what is best for you, and what solution works in your situation.