When it comes to estate planning, there are so many useful options, depending on what your planning goals happen to be. A durable power of attorney is a common tool. So is a living trust. So, what is the difference and how do you know which one you need for your estate planning.
What is the definition of a Durable Power of Attorney?
A general power of attorney is a flexible estate planning tool that allows you to choose someone who will handle all or part of your personal affairs, including making health care decisions. The person who signs and executes the power of attorney is known as the “principal.” The person authorized to act on behalf of the principal is the “agent” or “attorney-in-fact.”
A durable power of attorney is a special kind of power of attorney that will remain in effect even if the principal becomes incapacitated. A durable power of attorney can also be created where it only becomes effective when the principal becomes incapacitated.
What is the definition of a Living Trust?
A “living trust” is a particular type of trust that goes into effect while you are still alive, as opposed to being created through your will upon your death. As with any type of trust, the trust property will be managed by the trustee, and later distributed to your beneficiaries after your death. With living trusts many people name themselves as the initial trustee so they can maintain control of the property while they are alive. Then upon their death, incapacity or resignation, the successor trustee takes over.
How are these two estate planning tools different?
A living trust will often be one of your main estate planning documents. It will handle both the management of your assets while you are incapacitated and the distribution of your assets upon your death. An important aspect of estate planning with a living trust is that you will be required to transfer your assets to the trust in order for the trust to be effective. The trustee will have the authority to manage all of the trust assets only. On the other hand, your living trust does not give your trustee any power over assets that are not transferred to your living trust.
Instead, it is your durable power of attorney that gives your agent the authority to manage your non-trust assets, i.e., assets that are still in your individual name. Under the authority of the power of attorney, your agent will also be able to manage those assets you neglected to transfer to your living trust as well as your retirement accounts, annuities, life insurance policies, and social security. Furthermore, your durable power of attorney will give your agent more wide-ranging authority over such issues as the ability to gain access to your mail, deal with the IRS, enter into contracts on your behalf, as well as many other actions where legal authority is required.
A major difference between a power of attorney and a trust is that a power of attorney will expire upon the death of the principal. The power of the trustee is effective during the trustor’s life and after his or her death.
Comprehensive estate planning typically includes both
Most comprehensive estate plans will include both a living trust and a durable power of attorney. In those cases, you should be sure that your agent is aware of the relationship between these two legal documents so he or she will know which document to present when attempting to manage certain aspects of your affairs.
Some benefits of living trusts help to avoid probate
One key benefit of creating a living trust is that your family may be able to avoid the lengthy and costly probate process. With a last will and testament, your estate must go through probate so that your assets can be distributed according to the terms of that will. However, with a living trust, your estate will not go through probate and your heirs can receive their inheritance much sooner.
Some benefits of a durable power of attorney
One benefit of a durable power of attorney is that you can decide now who you want to make decisions for you and act on your behalf if you become incapacitated, rather than have a judge make that decision for you. The agent you select will be able to step right into your shoes and make the necessary healthcare decisions without going through a lengthy and costly court proceeding. If you do not have a durable power of attorney, the court will most likely appoint a conservator.
Download our FREE estate planning checklist today! If you have questions regarding a durable power of attorney or any other estate planning needs, contact the Northern California Center for Estate Planning and Elder Law for a consultation, either online or by calling us as (916) 437-3500.
Latest posts by Timothy P. Murphy (see all)
- The Steps in Handling the Probate Estate - March 22, 2017
- Unexpected Death at Yosemite National Park Stresses Need for Estate Plan - March 20, 2017
- Understanding the Benefits of a Testamentary Trust - March 15, 2017