There are many different estate planning options, all of which can help you achieve your goals in preparing for the future. A living trust and a durable power of attorney are two common examples. Clients are often confused as to the difference between the two estate planning tools. Let our living trust lawyers explain the similarities and differences between a living trust and a durable power of attorney.
What is 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 every other kind of trust, the trust property will be administered by the trustee, and later distributed to your beneficiaries upon your death. With living trusts, most people name themselves as trustee. That allows you to maintain control over your property while you are still alive. Then upon your death, your chosen successor trustee will take over management of the trust on behalf of your beneficiaries.
What is a Durable Power of Attorney?
A power of attorney is a customizable estate planning tool that allows you to choose someone to manage all or part of your personal affairs, including making health care and financial decisions while you are alive. As the person who signs and executes the power of attorney, you are referred to as the “principal.” The person you select to act on your behalf is known as the “agent” or “attorney-in-fact.”
A durable power of attorney is essentially a specific type of power of attorney that can remain effective even you, the principal, become incapacitated for any reason. A durable power of attorney can also be drafted so that it only becomes effective when at the point you become incapacitated. The choice is yours.
Let our living trust lawyers explain the difference
A living trust will most likely be one of your primary estate planning documents. It will address how your assets will be managed while you are incapacitated, as well as the distribution of your assets at your death. An important component of an estate plan that includes a living trust is that you will be required to transfer your assets to the trust. This must be done in order for your trust to be effective. The trustee has the authority to manage only the trust assets and no other property in your estate. In other words, your living trust does not give your trustee any authority over assets that have not been transferred to your living trust.
On the other hand, your durable power of attorney gives your agent the authority to manage your non-trust assets that are still in your individual name. Under the authority of your power of attorney, your agent can also manage any assets you failed to include in your living trust, as well as your retirement accounts, annuities, and social security benefits. Additionally, your durable power of attorney will provide your agent with more wide-ranging power over such matters as the ability to gain access to your mail, deal with the IRS, and execute contracts on your behalf, as well as many other transactions where legal authority is required.
Estate planning often includes both tools
Most comprehensive estate plans will include both a durable power of attorney and a living trust. Our living trust lawyers recommend that you make sure your agent is aware of the relationship between these two legal documents so they will know which document to present when attempting to engage in certain transactions or take certain actions.
Living trusts can help to avoid a lengthy probate process
Another important benefit of creating a living trust is that your family may be able to avoid the expensive and time-consuming probate process. With a last will and testament, your estate is required to go through probate so that your assets can be distributed according to the terms of your will. On the other hand, having a living trust means your estate does not go through probate, at least as to the assets that are title in the trust name. That also means your heirs can receive their inheritance much sooner.
Living trusts provide legal protection
Another great benefit of using a living trust is that it offers legal protections that other estate planning tools typically do not. A living trust is a legal document similar to a contract, which is enforceable through the court system. Therefore, in the event there are any disputes or challenges to asset transfers or other transactions made pursuant to the trust terms, the court will step in and enforce those terms. Let our living trust lawyers help you create a trust that provides the proper protection.
If you have questions regarding living trusts or any other estate planning matters, please contact the experienced attorneys at the Gersh Law Offices, P.S.C. for a consultation. You can contact us either online or by calling us at (502) 423-7023. We are here to help!