Living trusts and a Durable Power of Attorney are both powerful estate planning tools – but which is best for your estate plan to manage assets later in life?
A revocable living trust allows you to transfer assets such as a home, financial accounts and personal property to a trust. These assets are then managed for your benefit during your lifetime, and either continue to be held and managed or transferred to your beneficiaries when you die. Living trusts have become popular not only to avoid probate, but to help manage your assets later in life.
A living trust’s greatest advantage is probably its use in managing property in the event of your incapacity. Establishing a revocable living trust now can prevent the need for a guardianship of your estate and property later. The trustee of a living trust can be given the responsibility of managing your income-producing properties, such as investment assets and business interests. You can choose a trustee with expertise in those areas, such as a bank or a law firm, or even a family member to handle the Trustee duties. In fact, living trusts are can also be used not only in the event of incapacitation, but also if you do not want to spend your time managing assets. In addition, assets you place in trust while you are alive and able to transfer them will avoid probate.
A Durable Power of Attorney, on the other hand, is a less formal estate planning tool that can be used in incapacity planning. A Durable Power of Attorney is a document that allows you to appoint a person or professional to handle your affairs while you are unable to do so. The person or organization you appoint is referred to as an “Attorney-in-Fact” or “Agent.”
A Durable Power of Attorney can provide a simpler and more inexpensive method for managing your assets should you become incapacitated. Your chosen agent must be someone you can trust to act in your best interests, as your only recourse for improper acts by your agent will be either to revoke the agency or, if you are unable to do so because of incapacity, for your family to seek legal intervention.
Many who have smaller estates find that a Durable Power of Attorney meets their needs, while more complex estates may benefit from the formality of living trust. An estate planning attorney with expertise in living trusts can best advise you on the proper estate planning tool to meet your specific needs.