A person given authority via a power of attorney, known as an agent or attorney in fact, and a trustee of a trust are similar in some respects. For example, they are both tasked with managing your property should you become unable to do so.
Powers Granted By a Power of Attorney
A power of attorney grants the agent the authority to manage your business and financial affairs such as sign documents on your behalf or access bank accounts to pay for your mortgage, for example. The scope of the agent's power can be limited to certain types of transactions or be more general in nature. A power of attorney can be especially important when an account is in one spouse's name. If you become incapacitated, your spouse will not be able to access accounts titled in your name alone.
Timing of Powers
The agent's power can be effective immediately or take effect when you become incapacitated. In contrast, if you are the initial trustee of your trust, which is common, your successor trustee would not have authority to manage your affairs until you become incapacitated or deceased.
Powers can take effect:
Now (Power of Attorney) --> Upon Incapacitation (Power of Attorney/Trust) --> Death (Trust)
Termination of Powers
Upon your death, the agent loses the authority granted by the power of attorney. Your successor trustee, however, does not lose authority when you die. Often times this is precisely when the successor trustee gains authority. The successor trustee manages the trust assets after your death, which often ultimately includes distributing the assets to beneficiaries. The trustee's power ends when the trust ends or if the trustee is replaced.
No Conservatorship Needed
A power of attorney is a smart way to save money, time, and even embarrassment should you become incapacitated. Without a power of attorney, someone would need to petition the court for conservatorship, which will cost a lot more than the cost to create a power of attorney. Additionally, it will waste unnecessary time. Furthermore, it could be potentially embarrassing if you enjoy your privacy as the proceeding is public record. Anyone can retrieve the court record and learn about your situation.
Trust Assets vs. Non-Trust Assets
A trust similarly eliminates the need for a conservatorship. However, even if you have a trust you still need a power of attorney. Only your trustee can manage assets titled in the name of the trust, while only an agent with authority from a power of attorney can manage assets that are not in your trust. If you fail to retitle assets that you acquire immediately prior to death or fail to retitle because you neglected to update your estate plan over the years, your trustee will have no authority in regard to those assets. A power of attorney is also needed for assets that are purposely not included in your trust such as life insurance, retirement accounts, or certain government benefits such as Social Security.
The Bottom Line: Everyone Should Have a Power of Attorney
An agent given authority through a power of attorney and a trustee given authority through a trust serve a similar purpose. Both can manage your assets should you become unable to do so. While a trust may not be necessary for every person, everyone should have a power of attorney. By creating a power of attorney, those who can't currently afford a trust can get some of the incapacity protection that a trust provides without the cost. A power of attorney is relatively inexpensive, but very beneficial should you ever become incapacitated.
This article is a service of the Law Office of Keoni Souza, LLC, an estate planning law firm in Honolulu, Hawaii. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by contacting our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
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