Living Trust and Power of Attorney

By Jim Gianelli

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Estate planning is more than just transferring assets to your loved ones upon your death. Perhaps more importantly, good estate planning includes choosing the right people to manage your financial affairs in the event you cannot do so.

Most estate plans include both a “living trust” and a “power of attorney.” While each document plays virtually the same role – allowing the person of your choice to manage your affairs while you are incapacitated – having both is essential.

Your living trust is your main estate planning document. It handles management of your assets if you are unable to, and distribution of your assets upon death. Because a trust only controls what it owns, it’s important to re-title your assets to the living trust. If this is done properly, your trustee (the person designated to manage your financial affairs) will have the authority to oversee all of the assets. This will enable your trustee to pay bills or keep funds in proper accounts. However, your trustee does not have authority over assets not titled to your living trust.

What if you forget to put some of your assets into your trust? Or what about the assets that are intentionally left out of your trust, such as retirement accounts, life insurance policies, annuities and Social Security? Since they are not in the trust, the trustee does not have the authority to manage them if you become incapacitated.

These are the situations where a separate power of attorney is needed. This document gives your “attorney in fact” authority to manage non-trust assets. It allows that person to deposit your Social Security, for example, or to better invest your retirement account. Furthermore, with this document, that person will have authority to deal with vital aspects of life such as accessing your mail, dealing with the IRS, and entering into contracts on your behalf.

Both a living trust and a power of attorney work together in forming a comprehensive estate plan, with the goal of preventing any asset from falling through the cracks upon death or incapacity. For proper planning, it’s important to know how both of these documents work together, and under what circumstances each may be needed.

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