The purpose of this article is to explain the difference between a revocable living trust and durable power of attorney. There’s going to be three main things I’m going to address.

  1. Definition of Both a Revocable Living Trust and a Durable Power of Attorney.
  2. How Both a Living Trust works and how a Durable Power of Attorney works.
  3. When you will need one or the other… or both!  I mention the difference in costs as well.

What is the definition of a Living Trust?

A trust is a document, a legal agreement between the creator of a trust and the trustee.  The trustee is the money manager and controller of the assets that are transferred into the trust. The legal agreement creating the trust controls how the trustee is to manage the creator’s money and assets.

So a living trust is a property management tool that is used to manage property upon the creator’s incapacity or death, or during the creator’s lifetime.

It is called a living trust because the creator’s money is transferring into an account under the trust’s name during the creator’s lifetime.

Now, contrast a living trust with a durable power of attorney.

What is the definition of a Durable Power of Attorney?

A durable power of attorney is another legal instrument used where one person is giving all financial power to another on what to do with anything financial if the creator becomes incapacitated.

Now, the person you name under a durable power of attorney supplements you.  You can still manage your finances.  The person you name under a durable power of attorney can also manage your finances.

Difference between Living Trust and Durable Power of Attorney: How Each Works

The big difference between the two are “which one controls… and when?”

Now, let’s talk about when each controls.  Control is really the key issue.  Both a trust and a durable power of attorney can both control assets when the owner of the assets is incapacitated.

Incapacitated could be mean being mentally incapacitated with dementia or Alzheimer’s or Parkinson’s, or physically incapacitated, like a coma or just bed-bound at a nursing home, because you need so much care.

However, the trustee (or living trust) controls assets only held in the trust. If the trust holds assets, when a statement comes in and it says the trust’s name on it, that person who is named trustee during the creator’s incapacity manages just the trust assets.

The trustee named in a trust trumps the person with durable power of attorney.

Contrast trust ownership and control with a durable power of attorney.

The durable power of attorney can manage any assets not held in a trust. If you don’t have assets in trust, the durable power of attorney controls. Further, the durable power of attorney will control any other financial issue, not just assets. It can control things as simple as dealing with your mailbox and paying bills. That’s not going to be controlled by the trust.

When would you want a living trust and not a durable power of attorney, visa versa, or both?

Maybe starting out, a lot of people just get a durable power of attorney because it can control anything when you’re incapacitated.

Everyone should have a durable power of attorney, especially if you have somebody you trust with your finances.

A trust might be helpful when you have a lot of assets or tricky assets to handle (e.g. real estate, business, or investment accounts over $500,000). The trust will control the large portion of your finances.

Frankly, you shouldn’t just get a living trust because a living trust does not cover day to day financial tasks like paying bills, filing taxes, dealing with government entities and so forth.

So you may want both, because what’s not going to be covered by the trust, as it only controls assets, can be controlled by the durable power of attorney.

Now, the last point is that the durable power of attorney is much cheaper to draft and advise. If someone is asking me to create a durable power of attorney for them, it’s controlling now and it’s delegating power, verses creating a trust has many different rules and steps that can happen, and many different scenarios.

It’s not just during incapacity. There’s a difference between creation and decision-making when it comes to creating a trust. It’s much more difficult than a durable power of attorney.

If you’re looking to give somebody the ability to control your assets if you become incapacitated, the cheaper option will be a durable power of attorney, the more expensive option will be a revocable living trust.

Conclusion

The important point of this article affects caregivers and family acting on behalf of an elderly person.  You must know the difference between a living trust and durable power of attorney, and when each would apply.  If you have neither, you need to find an elder law attorney to create a plan and instructions with a living trust and durable power of attorney.

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Your Primary Estate Planning Checklist Components

The purpose of this article is to explain what kind of estate planning checklist you need to have before you meet with me or another estate planning attorney.

Three important three keys you need to have prepared:

  1. You need to be prepared to talk about your family and people in your life;
  2. You need to know what you have in terms of assets; and
  3. You need to know your estate planning goals.
So let’s break that down into a little goal, a little bit further and specific.

So, who are the important people in planning your estate?

Of course it’s going to be you.  It could be your  spouse or significant other (don’t have to be married); they’re a key player.  Next, you’re thinking about your children:

  • You children can be the kids that you talk to daily (of course!);
  • Estranged children who you haven’t seen in 30 years need to be discussed… kids can be illegitimate children;
  • Former stepchildren of a deceased spouse;
  • All the kids need to be identified, just by name at minimum if you’re out of touch. You also need to know other players in your life and your family.

If you’re younger, you need to name distant relatives, just your parents, of course, so we know whom your parents are. But those are the main people you need to have identified, and maybe even their last known address available.

Key players that might have any gripes about your estate: ex-wives, former spouses, estranged children. Those people need to be identified and discussed with your attorney.

That should be the first part of your estate planning checklist.

Next, you need to get a handle on your assets.

The conversation with your estate planning attorney will revolve around your assets and what will happen to them if you become incapacitated or if you pass away. So, you need to get a handle on where your accounts are:

  • Banks, specific financial institutions, and insurance companies; and
  • What type of investments are they? Annuities, real estate investment trust, raw land, time shares, yachts: those are assets. Condos, rental property, any kind of financial asset that you might have, gold, those types of things you need to have a handle on.
  • You just need to come up with a general value and how the statements come in, how the assets are titled.

So that’s what you need to have a firm grasp on before you meet with an estate-planning attorney.

The last part of your estate planning checklist should cover your goals.

What do you want to accomplish in your estate plan?

What brings you to do estate planning?

Do you have any particular goals relating to your family? Your children, when they get the money – when they don’t get the money.

If there’s anything left, do you have any specific goals regarding yourself?

  • Are you in a second marriage?
  • Do you want to protect your assets from a nursing home?
  • Do you want to protect your assets from a creditor?
  • Do you want to do estate planning for your business? Do you want to make sure your kids don’t squander your assets if you were to pass away and they were to inherit?

If you need help gathering information to determine and better define your goals, then continue your search on this site or purchase a book on estate planning.  Most estate planning attorneys offer seminars and workshops to help define your goals; I recommend you inquire at each attorney’s office when you’re on your search.

These are the three main points, a part of your estate-planning checklist. These three points are the primary discussions on your first appointment with an attorney in addition to whatever information the estate planning attorney’s assistant provides or offers to you before your first meeting.

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