Knowing the benefits and drawbacks of living trusts and powers of attorney can help you make informed decisions when creating an estate plan. If you are unfamiliar with the estate planning process, it is best to speak with experienced lawyers for wills and trusts who can evaluate your specific situation and help you understand your options.
What is a Living Trust?
Trusts are often an integral part of estate planning. A living trust is a type of trust that is in effect while you are alive. Like any other trust, assets and property in a living trust are administered by a trustee and are distributed to your beneficiaries upon your death. You may name yourself as the trustee so you can maintain control over your assets. You may also choose a successor trustee who will take over management of assets in the trust should you become incapacitated or pass away.
What is a Power of Attorney for Finances?
Power of attorney enables you to appoint a trusted friend or family member to manage all aspects of your finances if you become unable to do so yourself. This agent can pay bills, buy and sell property, manage your bank accounts, real estate, and investments and handle other financial matters on your behalf. Typically, a power of attorney for finances only goes into effect if you become incapacitated.
Differences Between a Living Trust and Power of Attorney for Finances
Both living trusts and powers of attorney are important estate planning tools. The big difference between the two is that you choose which assets go into your living trust. If you die or become incapacitated, the successor trustee may only manage the trust assets, not assets or property outside of the trust. That is why it is vital to transfer all assets you want to put in the trust while you are alive and functional. You can also specify how you would like your assets in the trust to be managed.
A power of attorney for finances gives the named agent the right to manage all of your non-trust assets. This can include social security benefits, retirement accounts, and other investments that aren’t included in the living trust. Generally, a designated agent of a power of attorney has much more freedom to manage all your finances and assets as they see fit. A living trust gives a trustee very while a power of attorney gives an agent more power to manage all your finances as they see fit.
Other Benefits of Living Trusts
Depending on the circumstances and how your estate plan is set up, a living trust can help your loved ones avoid the often lengthy probate process. A trust may also provide legal protections against creditors and disputes or challenges to your estate. If you choose to include a living trust and power of attorney for finances in your estate plan, lawyers who provide estate planning services recommend that you make the successor trustee and the designated agent of your power of attorney aware of the relationship between the two. Being informed can help them understand what they will need to provide when engaging in certain actions on your behalf.
Do you need help with estate planning? Our full-service law firm in West Chester can help you create a plan that protects your interests and your family.