December 2, 2013   Trusts

Why Do I Need a Power of Attorney if I Have a Living Trust?

By Vickie Schumacher
When your attorney prepares your living trust document, he or she will probably also prepare a durable power of attorney for asset management. There are several reasons why this document could be important.
 
1. Limited control over assets not in your trust. Your living trust document can only give your successor trustee (or co-trustee) authority to manage the assets you put into your trust. A durable power of attorney for asset management gives your successor limited authority to manage assets that are not in your trust.
 
For example, let’s say you are incapacitated and your successor trustee finds that you forgot to put an asset into your trust—or you receive an inheritance or win the lottery in your personal name. This document (when properly written, of course) can give your successor the authority to change the title and put the asset into your trust for you. Your successor will also be able to do this for you if you are well and simply out of the country or otherwise unavailable.
 
2. Convenience. Although your living trust document gives authority to your successor trustee (or co-trustee) to act for you, some people and institutions still may not be that familiar with trust provisions. Instead of trying to educate them in an emergency, your successor can show them the durable power of attorney document, which is readily recognized by just about everyone.
 
3. Power to sign your tax returns. A durable power of attorney for asset management can give your successor trustee authority to sign your tax returns. Interestingly, this authority cannot be given through your living trust document. (Just one of those things.)
 
It is important to note that these powers are given only to the same people you name as your successor trustee (and co-trustee, if you have one) and in the same order as you have listed them. In other words, the powers are given to the trustee who steps in for you—they go to the trustee position rather than to a specific individual. So if your first choice for successor trustee is unable to act, your second choice (or third, if necessary) will have this authority.
 
Tying these powers to the successor trustee position gives you much more protection than if you simply gave power of attorney to an individual. A trust is a binding legal contract when it is signed and trustees are fiduciaries; by law they have a legal duty to follow your trust instructions and to act in a prudent manner at all times for the benefit of the trust beneficiaries. If an acting trustee were to abuse his/her fiduciary duties, he/she could be held legally liable. 
 
 
Vickie Schumacher is the author of the best-selling book, “Understanding Living Trusts.®” The sixth edition is currently in production.
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