Trusts are
fundamental tool for estate and business planning. The purpose
of a trust is to provide for control over financial
assets.
What is a Testamentary
Trust?
A Testamentary (versus
"living") trust can be part of your will. Unlike
a Living Trust which takes effect upon
execution, a Testamentary Trust only becomes
effective at your death. Such trusts frequently are
designed to extend the time for controlling assets given
to minor children or grandchildren beyond the age of
majority (18 in most states.) They can also be used to protect
the disabled and elderly. Sometimes, Testamentary Trusts
can be used as part of a tax savings plan.
What is a Living
Trust?
A Living Trust, legal known as
an intervivos trust is effective during your
lifetime. Typically, your trustee manages your
assets for your benefit during your lifetime, as well as
direct the distribution of assets upon your
death. Testamentary Trusts are frequently used to
provide continuing management of your assets in case you
become incapacitated. There may also be substantial tax
savings
Who Should be named as
Trustee?
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A Trustee has tremendous
responsibility and obligations to follow the terms of
the trust in accordance with directions of the Probate
Court and state laws. If a family member, or some close
trusted individual has the capacity and business acumen
to act as Trustee, that is frequently your best choice.
If not, you will be compelled to name a bank or
institution as trustee. This can be expensive. What are the duties of a
Trustee? |
Why is a Revocable Living Trust Better than a Power
of Attorney
It has been a long-held
belief among experienced estate planning practitioners that a
fully-funded revocable living trust
is a superior method, as compared to a Power of
Attorney, by which to handle the long-term administration
of a person's assets after that person becomes incompetent
and/or"disabled."
Reasons often cited are as
follows:
1. Banks and financial
institutions will generally recognize the authority of a
Trustee under a Trust more readily than an Attorney in Fact
under a Power of Attorney.
2. Attorneys in Fact
under a Power of Attorney operate under the law of agency,
whereas Trustees operate under fiduciary or trust law, and
banks (in particular) and other financial institutions are
more comfortable and familiar with the
latter.
3. Many banks and
financial institutions will not recognize a Power of Attorney
that is not drafted in accordance with (if not on) their
own preferred POA forms. Supposedly, Bank of America is
notorious in this regard. Some jurisdictions have laws
which purport to require financial institutions to recognize
POAs valid in that jurisdictions, but I am not certain how
effective those laws are.
4. "Springing" Powers
of Attorney present a special set of problems in getting
financial institutions to recognize the authority of the
Attorney in Fact, because the institutions demand sufficient
proof that the POA has actually "sprung" (i.e., that the
Principal has become incompetent), which generally slows
things down at a time of crisis.
If the threat of
a long-term disability and its effect on the management of
one's assets is the "disease," then the POA is a
"band-aid," while a fully-funded RLT is the
"cure!"
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