If I Have a Revocable Living Trust Do I Still Need a Power of Attorney?
We frequently see situations where clients have set up a revocable living trust. Trusts are great planning tools and they would typically contain language which deals with distribution of assets at the death of the person(s) who set up the trust.
The use of trusts is also a great way to keep assets out of probate.
We often see situations where clients set up the trust and then they either don’t have a power of attorney because they believe they no longer need one, or they have a power of attorney with very little planning language in it.
This can be a big mistake. There are several reasons. Among the most important is that nowadays we see many clients who have a large amount of money in their retirement plans. These might be in the form of an IRA or 401(k) or some other retirement plan.
By law these plans cannot be put directly into the revocable living trust. If the account holder puts their retirement plan directly into their trust, it would make the entire account taxable. So the retirement plan, by law, is sitting outside of the trust.
So what happens if the account holder becomes incapacitated? Hopefully they have named an agent on their power of attorney to deal with those assets outside of the trust. The power of attorney should be what we call a “Powerful Power of Attorney.”
By that we mean it is important to have all of the planning language in both the power of attorney and in the revocable living trust itself. The reason is that planning can be done in that event, no matter where the assets are held.
From a planning perspective, we need to ask and answer two questions. The first is, “What happens when I die?” That’s a crucial question.
In addition, we need to ask and answer the question, “What happens if I don’t die but become sick along the way?”
In order to be able to deal with both of these questions, it’s important to have powerful planning language inside the revocable living trust (if that’s appropriate for the client) and also in the power of attorney. Both of these documents are crucial to have in a well-crafted asset protection plan.
For more information:
Who can I name as my power of attorney