The purpose of estate planning is more than just distributing your estate to your loved ones after your death. The best estate plans also include instructions for managing your personal and financial affairs, in the event you are unable to do so, even prior to your death. Comparing living trust vs power of attorney, is a common exercise for many clients. This article will provide some insight into your options.
Why do I need an estate plan?
Planning for the future is extremely important. If you plan now, you can determine who you want to inherit your property after your death, while taking steps to reduce the amount of taxes your estate will have to pay. In the unfortunate event that you become incapacitated, either temporarily or permanently, an estate plan you can provide protection for you and your family.
Living Trust vs. Power of Attorney: Which one is better?
You may be surprised to know that, the most comprehensive estate plans include both. A power of attorney and a living trust provide essentially the same benefits. However, if you need a way to manage your affairs in the case of incapacitation, using both instruments is the best choice.
The purpose of a living trust
One advantage of using a living trust is the ability to ensure your property will be managed upon your incapacity or your death. A living trust gives your agent, or trustee, the authority to manage the assets you have placed in the trust. However, your trustee does not any power over property that has not been retitled to your trust. The only problem is, what will happen to the assets that were not included in the trust? Typically, assets such as retirement accounts, annuities, Social Security benefits and life insurance policies are not transferred to trusts. This is where a durable power of attorney becomes a great benefit.
The benefit of adding a durable power of attorney
Including a durable power of attorney in your estate plan will give someone authority over your non-trust assets. This means your agent can control the property you intentionally left out of your trust, as well as the property that was mistakenly excluded. A power of attorney also allows you the power to control your agent’s specific authority over those assets.
How does a power of attorney work?
If you create a general power of attorney, your agent will have wide-ranging authority over certain categories of affairs, such as medical treatment or financial decisions. On the other hand, a limited power of attorney is established specifically for one purpose, instead of a category of affairs. For example, you can create a power of attorney that gives your business partner authority to access certain assets for the benefit of the business, in the event you become incapacitated. Another common example is to give an agent specific authority to handle management of rental property, in your absence.
If you have questions regarding power of attorney, or any other estate planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.