Estate Planning is more than transferring assets to your loved ones upon death. Perhaps more importantly, comprehensive Estate Planning includes appointing an agent to manage your financial affairs in the event of incapacity. Most Estate Plans include the use of both a Living Trust and a Power of Attorney. Many agents are unclear as to why they need both documents to essentially carry out the same task: manage your affairs while you are incapacitated.
Your Living Trust is your main Estate Planning Document. It handles both the management of your assets while you are incapacitated and it also handles the distribution of your assets upon your death. A key aspect of planning with a Living Trust is that you must re-title your assets to your Living Trust in order for the Living Trust to be effective. Your Living Trust gives your agent, normally referred to as a "Trustee," authority to manage all assets that are titled to your Living Trust when you are incapacitated. Conversely, your Living Trust does not give your Trustee authority over any assets that are not titled to your Living Trust.
Upon your incapacity, your agent may discover that you forgot to transfer some of your assets to your Living Trust. In addition, there are certain assets that are purposely not transferred to your Living Trust, such as Retirement Accounts, Annuities, Life Insurance policies, and Social Security. If your agent needs to manage any of these assets, your agent will have no authority to do so under your Living Trust. This is where a Power of Attorney becomes necessary.
Your Power of Attorney gives your agent the authority to manage your non-trust assets, i.e., assets that are titled in your individual name. Under the authority of the Power of Attorney, your agent will be able to manage any assets you forgot to transfer to your Living Trust as well as your Retirement Accounts, Annuities, Life Insurance policies, and Social Security. In addition, your Power of Attorney will give your agent broader authority over such issues as the ability to gain access to your mail, the ability to deal with the IRS, and the ability to enter into contracts on your behalf.
Comprehensive Estate Planning includes both a Living Trust and a Power of Attorney. Your agent should be aware of the interplay between these two documents in order to know what document to present when attempting to manage your financial affairs in the event of your incapacity.