Good to Know

Incapacity planning may be on the minds of many Americans as COVID-19 continues to threaten our health. The Durable Power of Attorney was discussed as an incapacity planning tool in our most recent blog. While this tool is generally effective, it is not unusual for banks and other financial institutions to question the current validity of (or reject) a Durable Power of Attorney that is several years old. At the least, the bank may require a certificate from the principal’s attorney confirming that the Durable Power of Attorney has not been revoked and remains valid.

Generally, banks and other financial institutions are more comfortable with Living Trusts, also referred to as Revocable Living Trusts or Revocable Trusts. These trusts do not generally have the same validity issues that a Power of Attorney can have.

There are other advantages of Living Trusts, including:

  • Living Trusts generally remain valid after the grantor’s death but Powers of Attorney “die” (cease to be valid) at the principal’s death.
  • Assets subject to a Power of Attorney are usually included in the principal’s probate estate and are subject to public scrutiny at the principal’s death; assets owned in a Living Trust are private and not subject to public inspection.
  • Living trusts offer significant grantor control over assets. Grantors are generally named as Trustee of their Living Trust, providing absolute control over the assets in the trust. A co-trustee can and should be named to ensure continuity of asset management at the incapacity or death of the grantor.

Caveat – assets must be titled in the name of the Living Trust for the trust to be effective. For example, a brokerage account could be titled “Jane Doe, Trustee, The Jane Doe Revocable Living Trust.” Living trusts are legal documents and should be drafted by a local, experienced attorney. Restrictions and caveats may apply. For example, lenders may restrict the re-titling of an asset pledged as collateral for a loan.

Powers of Attorney are powerful documents, especially for medical and end-of-life care decisions. But the savvy advisor may wish to make his or her clients aware that Revocable Living Trusts can play a key role in asset management during incapacity and after death.

Disclaimer

The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide legal or financial advice to clients. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this blog.