A power of attorney is effective only during your lifetime. A will becomes effective only upon your death. A trust is a three-party contract among the trustmaker (you, also called the grantor, settlor or trustor) the trustee (you, or someone you designate), and your beneficiary(ies). So why have them all?
A WILL: allows you to designate a guardian for minor children, which you cannot do through the other documents. It also allows you to name someone to manage any property left to or earned by your children. You cannot do this in a living trust. You can also forgive debts, and designate how to pay your taxes in a will. You can use your will to establish a testamentary trust for young children or to name a custodian under the Uniform Transfer to Minors Act. A will also enables you to express your wishes regarding donation of your organs for research/transplantation and disposition of your remains.
A POWER OF ATTORNEY: comes in two flavors – financial and health care. In a financial power of attorney (also called a general durable power of attorney) you name an individual or institution to manage your financial affairs if and when you become unable to do so. It can become effective immediately upon signing or upon the occurrence of a given event such as your hospitalization or incapacity (a springing power of attorney). Generally, if you trust your named agent (also called your attorney-in-fact) you should opt for immediate effectiveness as it eliminates the hurdles inherent in a springing power of attorney. If you don’t trust your agent, you have chosen poorly so you should reconsider; also bear in mind whether your named agent has the knowledge and ability to manage your affairs. A health care power of attorney (sometimes including a mental health power of attorney) confers upon your agent(s) the right to make decisions regarding your physical (and possibly, psychological) care when you are unable to express your own wishes. Once you have died, the powers of attorney are no longer effective.
Any property you own at the time of your death is known as your “probate estate.” Every state has rules governing the amount of your probate estate that may avoid court supervision or probate. The surefire way to avoid probate is to title all of the assets in your probate state in the name of:
A TRUST, which can be either revocable or irrevocable. In a revocable living trust, you no longer own your assets as an individual, but rather take title to them as trustee of your trust. Since the trust is revocable, you can make changes to it or revoke it in its entirety at any time prior to your death, after which it becomes irrevocable. Because the trust is revocable during your lifetime, you continue to pay tax on gains in trust assets and the revocable living trust offers little or no protection from creditors’ claims. In an irrevocable trust, you surrender your right to make changes to the trust, which provides certain advantages in terms of taxes and asset protection.
As you can see from the foregoing, wills powers of attorney and trusts each offer different advantages, which make each of them an important component of your estate plan. For further information or to schedule a free consultation, call Agins Law Firm, PLC, PLC/Sun Lake Estate Planning Advisors at (480) 401-2660.