Powers Of Attorney - I Have A Family Trust, Do I Need One?
A Durable Power of Attorney for Asset Management can be one of the most powerful and overlooked documents in your estate plan. In its most basic form it allows your “attorney in fact” to sign important financial documents for you in the event you are unable. Powers of attorney can be very specific, allowing for example, your attorney in fact to sign checks on one bank account for the two weeks you are traveling in Europe. They can also be very broad and powerful.
A power of attorney in an estate plan may become effective immediately upon signature or only upon your later incapacity. The power may allow your attorney in fact to create new accounts, make withdrawals from your bank account or IRA and sell your house. It may allow for them to make gifts, even to themselves. It may, in conjunction with your trust, allow the attorney in fact to amend or even revoke your trust.
When you read that last paragraph what comes to mind? Is this document something that can be your saving grace in an emergency, or a window to fraud? Well, yes, to both. That is why this document is so important, and it is important to understand its power, and that you trust your attorney in fact implicitly.
It may seem simple to restrict the power of attorney so that the attorney in fact doesn’t have the ability to name themselves as beneficiary, make gifts or amend the trust. Now consider what happens when you become incapacitated and something happens to require the use of the power of attorney. For example, consider the current financial crisis. What if you had an IRA at a failing institution, and it was prudent to move that IRA to another institution and your attorney in fact is one of your children. If you restrict the power of the attorney in fact to name themselves as beneficiary, the attorney in fact may not be able to name themselves as a beneficiary of that new account, frustrating your original intent.
Whether or not to make a power of attorney effective immediately or only upon incapacity is a difficult decision as well. On one hand, you can help prevent fraud if it takes two doctors signatures to declare you no longer have capacity to handle your own affairs. On the other hand, what if you travel frequently or are only out for surgery for a couple of weeks and you need your son to handle things while you are out? One thing that comes to mind is if you do not trust the person during your capacity, you should not trust them during your incapacity. In addition, obtaining doctor’s signatures is becoming increasingly difficult due to privacy rules.
A Durable Power of Attorney is an essential tool in your estate plan. Even though most of your assets are in your family trust, and a successor trustee can easily control those assets, they have no power over assets not in your trust, such as life insurance and retirement accounts. In the event of your incapacity, a properly drawn up power of attorney can also help to avoid a court supervised conservatorship, saving you and your family money and heartache. Consult your attorney to see if your power of attorney is sufficient for your needs.
In recent years Durable Power of Attorneys have been questioned by banks and other asset holders if they are more than a few years old. I recommend updating Durable Power of Attorneys every 2-3 years to help avoid any problems.