Planning For Incapacity - The Revocable Trust vs. The Power of Attorney.
One of the overlooked aspects of estate planning is planning for incapacity. What would happen if you were suddenly unable to manage your own affairs? Who would be able to pay your bills and manage your investments? Who would make decisions regarding your health care?
A well prepared estate plan addresses these issues. The medical decisions can be made pursuant to Health Care Advanced Directives such as the Designation of Health Care Surrogate and the Living Will. Click here for more information about these documents.
The Revocable Trust and Durable Power of Attorney provide a means to appoint a third party to manage your property and to enter into contracts on your behalf. The Revocable Trust deals with property that is titled in the name of the trust, while the Durable Power of Attorney deals with all other property.
Many people wonder why they would need a Revocable Trust if the Durable Power of Attorney can appoint someone to manage all of their property. First of all, the Revocable Trust will help the person avoid probate at his or her death. But for issues involving incapacity, there are also reasons why a Revocable Trust would be preferable.
DELAYING THE POWER TO ACT UNTIL INCAPACITY.
A Durable Power of Attorney gives the Attorney-in-Fact (the person being appointed) the power to manage the Principal’s property immediately upon the Principal signing the document. In the past, there used to be what was commonly referred to as a “Springing” Power of Attorney, which would spring into action only when a physician had determined the principal was incapacitated. A revision to Florida’s Power of Attorney law changed that and the power is now immediate. Many of my clients have expressed concern that an Attorney-in-Fact could act at any time.
A Revocable Trust, on the other hand, has no such limitations. The Grantor of the Trust can set it up so that the Successor Trustee can only have authority upon the death or incapacity of the Grantor. And the Grantor can define “incapacity” any way he or she wants. Even if the Grantor would want the Successor Trustee to have immediate authority, the Grantor can set it up that way.
Another advantage of the Revocable Trust is the ability to set up multiple sub-trusts inside of the Revocable Trust and assign a different Successor Trustee for each one. This would allow a parent of a child for whom a sub-trust is created to be the Successor Trustee of that sub-trust and only that sub-trust. Or conversely, it could allow someone other than the parent to be the Successor Trustee of that sub-trust, depending upon the family circumstances and dynamic.
And keep in mind that a well prepared Estate Plan has both a Revocable Trust and Durable Power of Attorney to deal with property inside and outside of the Trust. This allows the you to maximize the flexibility of your Estate Plan.