Powers of Attorney May Not Be Enough
A power of attorney is a way to delegate your decision-making authority to someone else. People often ask “My daughter has my power of attorney, is that all she needs?” While powers of attorney can be useful under some circumstances, people think they are of broader effectiveness than they are.
First off, a power of attorney is only effective so long as the person granting the power, otherwise known as the “principal,” is alive. For example, if you appoint your daughter as agent under a power of attorney, and you die, her authority dies with you. If she were to go to the bank and attempt to use the power of attorney to withdraw funds, they would tell her it is no longer valid. Basically, at your death, it ceased to be worth more than the paper on which it was written.
Even while the principal is alive, a power of attorney may not be the most effective way to delegate powers. For example, some title companies will not insure title on real estate when title is transferred pursuant to a power of attorney drawn up more than eighteen months before the transfer.
So, if a power of attorney may not be enough, what is the answer? A revocable living trust offers the solution. With a revocable living trust, you transfer your assets to the trust and you serve as the manager, or “trustee,” of the trust during your life. At your death or incapacity, the person whom you have selected steps in to make decisions for you. Your successor trustee simply presents the physician statement of your incapacity and thereby gains the ability to manage the assets in the trust. If the vacation home needs to be sold to pay for health care, he or she would have the authority to do so, even if the trust were done years before the incapacity.
The trust has the added benefit of avoiding probate, the legal process by which assets in a decedents name are re-titled after death. A trust may also provide a very flexible way to accomplish your wishes regarding distribution of the assets you placed in the trust. For example, if you want your assets held for your spouse and kids and then distributed out only after the youngest has graduated from college or reached age 25, it can do that.
Regardless of your wishes, a trust can help you achieve your goals. A qualified estate planning attorney who focuses his or her practice in that area can help you tailor an estate plan to ensure that your person of choice has the means to make decisions on your behalf.