Upon creating your estate plan, you have the capacity to not only formalize your wishes, but you also have the capacity to manage your finances. The original intent of your estate plan is to ensure that your affairs can be handled efficiently by the persons of your choice in case of a future invent such as incapacity or death. As a result, you typically name third parties who will have the legal power to handle your affairs in the future, while retaining sole control over your finances and personal decisions in the meantime. However, at some point, you may decide that you need a trusted person to have legal authority to help you with your finances such as writing checks and dealing with financial institutions on your behalf.
When you are ready to give a third party current authority to handle your finances, you have to make sure that you execute the correct documents for the appropriate situation. Most laypersons – and even many attorneys – simply think of executing a power of attorney document. It seems simple enough and many people assume that a general durable power of attorney will give the agent authority over all assets. However, if your estate plan includes a living trust, your power attorney alone will not be sufficient.
With a trust-based plan, most of your assets are titled to the trust and are not held in your individual name. Technically, you do not actually own the assets – your trust is the owner. However, you are the trustee and the beneficiary and thus you have the power to manage your assets for your own benefit. Most trusts do not allow a trustee to delegate authority to a power of attorney agent and most power of attorney documents specifically do not apply to trust actions. As a result, a general durable power of attorney will not give any legal authority to the power of attorney agent over trust assets. If most assets are titled to the trust, the general durable power of attorney will not accomplish the goal of giving a third party the legal authority to manage the majority of your assets.
In addition to executing a general durable power of attorney that gives an agent immediate authority, you must also amend your trust to add the third party as a current co-trustee. Once the amendment is executed, you must deliver a copy of the amendment to each financial institution and have the new co-trustee added to the signature cards. Although this is basic estate planning knowledge, it is astounding how often the step of amending a trust to add the third party as a co-trustee is overlooked. Often, the power of attorney agent will go to the financial institution assuming that the general durable power of attorney document will be sufficient, only to get turned down by the bank.
Even with an amended trust that adds the third party as a co-trustee, a general durable power of attorney document is still prudent. First, there are assets that are not titled to your trust during your lifetime such as retirement plans, annuities, and life insurance policies. Second, there are other tasks that might need to be performed on your behalf that can only be handled through a general durable power of attorney such as having the ability to access your mail, signing your tax returns, and entering into contracts on your behalf.
What seems to be a very simple task is more complicated than it first appears. As with all legal issues, it is important to make sure that the goals you are trying to accomplish are addressed comprehensively by an attorney who has the expertise to navigate the various legal rules and technicalities to ensure that you avoid unnecessary delays and hurdles due to a misunderstanding of the law.