There are many different estate planning options to manage your assets throughout your life. A living trust and a durable power of attorney are two common examples. While legal jargon can be a bit overwhelming, it is important for you to learn the difference between things like living trusts and the power of attorney so your estate management plans are secure. People are often confused as to the difference between a living trust and a durable power of attorney. Let our living trust lawyers explain the similarities and differences between these important tools.
A living trust is created during someone’s lifetime. Unlike a will, a living trust allows the beneficiaries you designate to get your assets quickly without an executor having to go to court to probate a will. Real Property that someone attempts to pass through a will must go through probate. You might have heard of trusts before and you might think that they are only for the wealthy. To the contrary, a trust can be a great way for anyone to make sure their estate is handled in a responsible way throughout their life and upon death.
A living trust, also referred to as a revocable trust, is a legal tool to manage your assets. A living trust can cover all stages of life – while you are alive, dead, or incapacitated. By placing your assets into a living trust, you can ensure that they are managed according to your instructions by someone who will manage the assets on your behalf. The grantor of the trust can designate an individual, bank, or trust company to act as successor trustee or co-trustee. Upon the grantor’s incapacity or death, property titled in the trust’s name will be controlled by the successor trustee or co-trustees in accordance with any direction you have provided in your trust.
A power of attorney (POA) is a different type of legal protection you can make at any time. Some are just for specific situations. With a POA, the grantor can authorize any competent adult to act on their behalf immediately or at a later date. The person creating the document is the principal, and the third party being given the authority is referred to as the agent or attorney-in-fact.
Generally, a power of attorney covers assets outside the grantor’s trust, whereas a trust document governs assets inside the trust. Giving someone general power allows an agent to perform a variety of functions, such as selling your property, filing your taxes, and conducting bank transactions. Limited authority, however, allows the agent to act only in specific situations listed in the document. Upon incapacity, a power of attorney goes into effect and the attorney-in-fact (the person named in the power-of-attorney document) will have control over the assets of the incapacitated individual.
The agent under a power or attorney and a trustee appointed to manage trust assets have some similarities—they each have the power to act on behalf of other people, for example—but there are important legal differences between the two positions.
The agent appointed under a power of attorney is usually an individual such as a spouse, an adult child, or a lawyer. However, a trustee can also be an entity or institution, such as a bank, investment advisory company or law firm.
A power of attorney can grant a limited or expansive scope of authority depending on the circumstances. In most cases, however, the principal appoints the agent to make decisions about all of their individually owned assets if the principal becomes incapacitated. A trustee, by contrast, has the right to manage the assets transferred into the trust. A trustee can also harness assets outside of trust if at risk of probate. A trust agreement spells out the powers of the trustee and the procedures to follow in connection with the trust assets.
Powers of attorney are valid only during the principal’s lifetime. The principal can revoke the power of attorney at any time during their lifetime, but if the principal does not revoke it, the power of attorney terminates automatically when the principal dies. A trust is different; it not only can be invoked upon the incapacity of the trust creator while they are living, but it also survives the death of the settlor. The trust allows for the powerful and efficient management of the estate. Most estate plans use living trusts to avoid probate. Since a power of attorney ends when the principal dies, an agent cannot perform the post-death duties that a trustee handles under a living trust such as preparing an inventory of assets, limiting liability to only valid debts, managing the estate, determining values and compiling an accounting, and making estate distributions.
While sometimes these estate planning tools overlap, the trust provides for your beneficiaries after your death, while the POA covers additional needs during your lifetime. Sometimes this is the same person. Be sure to protect yourself during and after your lifetime by ensuring that you have someone you can trust to manage your health care and financial matters.
There are times when you will want to have both. You should give someone authority under both if you want them to:
Can I make my own living trust? Before hiring an estate planning lawyer, some look at the cheap “do-it-yourself” approach. Generic prepackaged trusts and sample estate plans are available on the internet. These assembly-line-type trusts are peddled to a mass audience. Most clients are not trained in estate planning. They do not realize that any number of scenarios can arise which if not addressed in the trust, could result in legal warfare and drag the estate into the nightmare that is probate.
How much does it cost to set up a living trust? The cost of hiring an estate planning attorney can vary from one law firm to another. Factors in the cost include the estate’s size and whether the trust is for a married couple or a single person. Attorney fees typically range from $900 for a single person trust and $1,500 for a marital trust. The cost of the trust can increase for those who own multiple properties and for very wealthy estates.
Which is better, a will or a living trust? A will suffers from many limitations. In California, a will cannot pass title to real property without that will be probated. A revocable living trust is the superior means for passing on your wealth. It protects your beneficiary’s inheritance and avoids the huge costs and delays of probate.
It can be unsettling to think about a time when we or a family member might be unable to make decisions, but careful planning can bring peace of mind and security. Moreover, working with an experienced attorney for the careful and meticulous preparation of an estate plan ensures your assets are administered as you want them to be and reduces conflict and eases the burden on those you love.
The dynamic Temecula estate lawyers at Iron Clad Living Trust can help insulate your loved ones from a messy and time-consuming probate process. A living trust allows those you leave behind the ability to tend to the affairs of your estate without the unwanted involvement of the probate courts and expensive probate lawyers. A living trust is customized to each unique family and individual and can protect your assets, your estate and your loved ones. Call us today at (951) 587-3737.
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