A comprehensive estate plan includes not only documents designating your wishes at death, but also documents appointing people to manage your affairs while you’re alive (but incapacitated). So why do many estate plans will include both a durable financial power of attorney and a trust? Both documents allow for someone to manage and control your assets when you are unable to do so, but do you need both?
A durable power of attorney is an estate planning tool that allows you to name someone to handle your affairs when you are unable to do so for yourself. A durable power of attorney can be immediate or springing in Ohio. Springing means the powers only go into effect when you become incapacitated. Similarly, a trust gives a chosen trustee the authority to manage all assets that are titled to your trust if you are incapacitated. A revocable living trust allows you continue to control the assets in the trust as your own trustee. An alternate trustee would take over for you if and when you can no longer manage the trust yourself.
A trust gives the successor trustee the automatic authority to manage trust assets and accounts when you are incapacitated. Some financial institutions do not recognize powers of attorney due to “staleness” or if the documents do not contain certain provisions. If your document is not accepted, your agent will have to petition the court to be appointed as your guardian in order to manage those particular accounts.
However, your Trust does not give your trustee authority over any assets that are not titled to your trust. Certain assets are often purposely not transferred to your trust, such as 401(k) accounts and IRA accounts. Your durable power of attorney is given the authority to manage your non-trust assets. In addition, your power of attorney may also have the ability to gain access to your mail, deal with the IRS, and enter into contracts on your behalf.
Though similar authority is granted to a power of attorney and trustee while you are alive, those similarities end when you die. A trust handles both the management of your assets while you are incapacitated and the distribution of your assets upon your death. This allows for controlled distributions of your assets, and any assets titled to your trust would avoid probate. A power of attorney expires when you die. At that point, the executor of your will has the limited authority to oversee the probate process and distribute your assets.
Durable financial powers of attorney are important documents that everyone should have in their estate plan. If you have a trust, you still need a durable power of attorney. If you don’t have a trust, you should have an up-to-date durable power of attorney. The interpretation of these documents by financial institutions change frequently. Therefore, it’s important that you confer with an attorney at AlerStallings to ensure that your documents are up to date and right for your situation.