When your life has reached the stage where you may need to help a loved one or aging parent handle their finances or make medical decisions for them, a great tool to reach for is a power of attorney (“POA”).
As we’ll explain more fully below, a POA can be very useful, but it does have its limits. One major limitation to be aware of is that a Durable POA for finances cannot be used to manage assets in a trust.
Powers of Attorney
Briefly, a POA is a legal document that gives one person the power to act on behalf of another person.
The person executing the POA is the “principal,” and the person with the power to act for him/her is the “agent.”
In estate planning, it is common to execute a:
- Durable POA for health care (aka medical power of attorney)
- Durable POA for financial decisions
Each state has its own rules and names for medical, as opposed to financial, POAs.
In some states a Durable POA can be used to make either medical decisions or financial decisions for a person who is incapacitated. In Florida, POA’s are typically not used for medical decisions, instead Health Care Surrogate Designations are used.
The word “durable” in this context refers to the fact that the POA will not terminate if the person (i.e., the principal) becomes incapacitated. A Durable POA must have specific language allowing the power to survive the incapacity of the principal. In practice, most POAs are durable POAs because the very intent is for the POA to be used after the principal is incapacitated.
A power of attorney can be either limited or unlimited. This means that the principal decides exactly how much authority he wants his/her agent to have. If the POA is unlimited, then the agent has full authority to do whatever is reasonably necessary to carry out the mission of the POA. For example, if a Durable POA for finances is unlimited, then the agent can make any and all financial decisions for the principal. If it is limited, however, then the language of the POA will describe exactly what the agent has the authority to do.
Why a Durable POA Isn’t So Powerful When It Comes to Trusts.
A revocable living trust is a legal document that is created by a “grantor” to manage his/her assets during his/her lifetime and then to pass them on to his/her heirs at his death. For example, your parents might create a revocable living trust that they manage as trustees during their lifetime. (They would be the grantors, trustees, and beneficiaries of the trust in this case.) At their death, any money or property held in the trust will not have to go through probate to be distributed to their heirs.
If your parents have a living trust and they become incapacitated, you may think that you can simply use a Durable POA for finances to pay their bills, etc.
But you can’t.
Because the trustee of the trust (i.e., your parents) technically owns all the assets in the trust. Plus, the trustee has a legal duty to administer the assets of the trust. As a fiduciary of the beneficiaries of the trust (also your parents) he or she cannot give someone else (i.e., you) blanket authority to administer the trust assets by executing a durable power of attorney.
So, if you cannot act under your Durable POA to help your incapacitated parents pay their bills because they have a trust, what happens if the trustee of a trust becomes incapacitated and can no longer manage the trust assets?
Generally, in this type of situation, where it is shown that the trustee is incapacitated, what will happen is that the successor trustee named in the trust will take over.
Your estate plan is too important to leave things to chance. Take the time to hire an experienced estate and probate attorney to assist you.
Protecting Your Family is Just a Phone Call Away.
Don’t leave planning for your future and that of your loved ones to chance. All it takes is one phone call to the Law Offices of Samantha J. Fitzgerald to ensure that your wishes will be followed, and your loved ones taken care of when you are gone. We expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. When you work with the estate planning attorneys at the Law Offices of Samantha J. Fitzgerald, you get more than just an estate plan: you get peace of mind. Call us at 954-580-3690 or email us at: [email protected] today.