The best estate plans are comprehensive, because estate planning means more than just transferring your assets to your loved ones after you die. So, if you are wondering: living trust vs power of attorney? The answer is both. A comprehensive estate plan should include both a living trust and a power of attorney. Your agent, as identified in your power of attorney, should understand the relationship between the two documents, in order to know which document to use in which situation.
What is the purpose of a living trust?
A living trust is a written legal document through which your assets are placed into a trust for your benefit during your lifetime. The assets are then transferred to your designated beneficiaries upon your death by the person you choose to be your “successor trustee.” A living trust can be your main estate planning document, handling both the management of your assets if you become incapacitated, and the distribution of your assets upon your death.
What can a power of attorney do?
A power of attorney gives your agent the power or authority to act on your behalf. The most common purposes for a power of attorney are to manage legal or financial affairs, or to make health care decisions.
Why do I need both?
Basically, using a power of attorney in conjunction with a living trust will allow you to cover all aspects of your estate planning. When using a living trust, you are required to re-title your assets to the living trust in order for it to become effective. A living trust gives your trustee the authority to manage only the assets that are titled to your trust. However, the living trust does not allow your trustee any control over assets not included in the trust.
If it is later discovered that some of your assets were unintentionally excluded from the living trust, your trustee would not have any authority over those assets. Likewise, there are certain assets that are typically not included in a living trust, such as retirement accounts and life insurance policies. This is where a power of attorney is beneficial. The agent named in your power of attorney will have the authority to manage your non-trust assets. Also, a power of attorney can give your agent broad powers over such things as gaining access to mail, entering into contracts on your behalf and dealing with the IRS, if necessary. These are things that are not included in a living trust.
Do I need assistance in creating these documents?
The requirements for creating these two estate planning tools differ from one state to the next. Though you may be able to find do-it-yourself forms online or in the library, it is suggested that you consult with an estate planning attorney for assistance in drafting these important legal documents for you.
If you have questions regarding a living trust or power of attorney, or any other estate planning needs, please contact Wilcox Attorneys, PA online or by calling us at (479) 443-0062.
- Estate Planning is Essential Whether You Are Married or Not - April 25, 2018
- Income Tax Basis in Estate Planning – Part 2 - April 23, 2018
- The Downsizing Generation: How to Handle a Surplus of Stuff When a Loved One Ages - April 18, 2018