I already have a Revocable Living Trust in place. Why do I need a Power of Attorney?

When it comes to estate planning, there is no ‘one size fits all’ approach. Hence, an estate planner must think ahead and plan for unanticipated circumstances. A power of attorney is a very powerful tool and an integral part of a comprehensive estate plan. A power of attorney is a legal document that grants authority to one person (the agent) to act on behalf of another person (the principal). The principal voluntarily delegates certain powers and responsibilities to the agent, allowing them to make decisions and take action on matters specified in the document. The agent can act on behalf of the principal in financial, legal, healthcare, and other important affairs, depending on the scope of authority granted in the power of attorney. If a power of attorney is durable, it remains in effect if the principal becomes incapacitated, such as due to illness or an accident. However, a power of attorney is no longer valid after the principal dies. Once the principal dies, the power of attorney document becomes null and void.

Often times my clients ask me why they need a durable power of attorney besides a living trust.

Having both a power of attorney and a living trust is a comprehensive approach to estate planning. While they serve different purposes, they complement each other and provide broader protection.

Here’s why you might need both:

1. Both a power of attorney and a living trust play crucial roles in planning, but they address different aspects.

 A power of attorney comes into effect during your lifetime and allows your agent to make decisions on your behalf if you become incapacitated or if you want to delegate the decision-making. A power of attorney covers matters beyond the scope of your living trust, such as handling non-trust assets, managing financial accounts that are not held in the trust, dealing with government benefits, and handling other legal and financial affairs that may not be included in the trust.

 A living trust is primarily designed to hold and manage your assets during your lifetime and after your death. While you’re alive and well, you act as the trustee and maintain control over the trust assets. However, if you become incapacitated, the successor trustee you named in the trust can take over the management of trust assets, ensuring management and continuity. Remember, the trustee’s authority is limited to the assets that are trust property. If you have a bank account that’s not part of your trust, the trustee has no authority over such an asset. That’s when a power of attorney comes in handy.

2. Flexibility and Coverage: By having both a power of attorney and a living trust, you extend the scope of authority for managing your affairs. Some financial institutions or third parties may be more comfortable accepting a power of attorney when dealing with specific matters, while others might prefer working with the successor trustee of a living trust for asset-related transactions. Having both documents ensures that you have a comprehensive plan that covers a wide range of situations.

In my future posts, I will be delving deeper into the topic of power of attorney to provide you with more guidance. In upcoming discussions, I aim to explore various aspects of power of attorney, shedding light on its importance, different types, and the legal implications it carries.