Some clients include one or more trusts as part of their estate plan. For a trust to really do its job, the client needs to transfer assets to the trust. To transfer real property to the trust, a deed, usually a quitclaim deed, is done to make the trust the owner of the property rather than the client. For accounts, a new account needs to be opened in the name of the trust, and the balance of the old personal account transferred to the new trust account.
How Does a Durable Power of Attorney Differ from a Trustee?
There can be confusion about who has the authority to act in financial matters when a client becomes incapacitated. Two documents give direction on this. One that the client probably has is the Durable Power of Attorney (“DPOA”), which names a person (the “Power Holder”) to act on their behalf upon the client’s incapacitation. When the client is the trustee of his trust, the document should have a provision that appoints a successor trustee if the client becomes incapacitated. It is also common that the person appointed in the DPOA as the Power Holder is the same person named as the successor trustee in the trust document.
It is important that the right person is using his/her authority under the right document to act on behalf of the client. Before either the Power Holder or the successor trustee can act, he/she needs to present the documentation to the financial organization for acceptance. For instance, the Power Holder cannot simply walk in the bank, declare that he/she is the client’s Power Holder, and begin taking action. The bank will first want to see the DPOA to validate the Power Holder’s claim to authority. Additionally, if the Power Holder’s authority is conditional on the client’s incapacity, the bank will also want to see the document from the client’s doctor stating as such. Once proper authority has been accepted, it is important to act under the proper document.
And here is where the confusion arises. The Power Holder only has the authority to deal with assets outside of the trust. This contrasts with the successor trustee who only has the authority to deal with assets in the trust. We occasionally get calls from frustrated Power Holders who are denied authority over assets in the trust. The Power Holder complains to us, “But I’m the Power Holder under the DPOA. I’m supposed to be in charge of the assets,” but that’s not always the case. It all depends on where the assets reside.
For example, a trust holds an investment account, and the Power Holder wants to sell some investments to generate cash to pay the client’s bills. The financial organization will deny the Power Holder’s instructions to sell. The financial organization will only recognize the authority of the successor trustee. When assets are in the trust, the successor trustee is the one with authority, not the Power Holder. Similarly, the successor trustee will not be able to exercise authority over assets outside the trust.
Avoiding Problems with DPOAs and Trustees
Confusion in this area can be minimized if the client names the same person as both the Power Holder under the DPOA and the successor trustee in the trust document. When the documents are synchronized this way, the only issue is ensuring the financial organization has the proper document granting authority. If the assets are in a trust, the financial organization needs a copy of the trust document. If the assets are not in the trust, then the financial organization needs a copy of the DPOA.
Ensure Your Future Wishes are Respected with an Estate Planning Attorney
You want to be sure that your finances and assets will be properly looked over should anything keep you from making decisions for yourself. Estate planning can be complicated, but you don’t have to navigate it and handle all of the legal documents on your own. Martin Heller Potempa & Sheppard, PLLC will give you the guidance you need to ensure that your future is in good hands.