Living trust or power of attorney: Which is the better choice? In this article we will dissect the myths and facts of this comparison.
As I begin writing this article, I’m reminded of the significance of planning for unexpected circumstances. Life can be unpredictable and we should have plans in place to safeguard ourselves and those we care for – one such plan that often goes neglected is creating a living will trust or power of attorney; these legal documents offer peace of mind in times of crisis by protecting both assets and family members alike.
Key Takeaways
Living will trusts and powers of attorney are critical legal documents that protect your future. By designating who would make decisions for you if incapacitated, these legal documents give you control of who will make decisions on your behalf in case something arises wherein they cannot.
An updated living will trust and power of attorney can give you and your loved ones peace of mind. Ideally, these documents should be reviewed every few years to make sure they reflect your current wishes.
A living will trust and power of attorney can protect your assets, family and legacy.
Understanding the Basics of Living Will Trust and Power of Attorney
| Aspect | Living Trust | Living Will | Power of Attorney |
|---|---|---|---|
| Purpose | Manages assets during your lifetime and facilitates their transfer outside of probate. | Specifies healthcare preferences in case of future incapacity. | Authorizes a trusted individual to make decisions on your behalf. |
| Legal Entity | Revocable trust created during your lifetime. | Document that allows you to make advance decisions about your healthcare. | Empowers someone you trust to carry out trustee responsibilities. |
| Ownership of Assets | Holds assets within the trust. | Does not involve ownership of assets. | Provides assets for paying healthcare expenses. |
| Management | You can serve as trustee and manage trust assets. | No management of assets; focuses on healthcare decisions. | Trusted individual (agent) makes decisions. |
| Transfer Process | Assets can be transferred through trust administration process, avoiding probate. | Not applicable; focuses on medical care decisions. | Not applicable; focuses on decision-making authority. |
| Flexibility | Can modify or change the trust as needed during your lifetime. | Specifies advance decisions about medical care. | Allows you to make important decisions. |
| Pros | – Flexibility to modify the trust. – Assets can transfer outside of probate. | – Allows you to express healthcare wishes. – Specifies acceptance or refusal of medical care. | – Authorizes a trusted individual to act on your behalf. |
| Cons | – Doesn’t protect against creditors. – Assets within it can still be subject to estate tax. – Can be expensive to create. | – Not focused on money or property. – Solely addresses healthcare decisions. | – Decision-making authority may be limited to specific areas. |
Before diving deeper into why these documents are necessary, let’s first examine what they are. A living will trust is a legal arrangement that allows you to express your wishes regarding medical treatment if you become incapacitated and cannot communicate your preferences yourself. On the other hand, a power of attorney gives someone else authority to make decisions for you when necessary.
Although both documents address decision-making during incapacitation, there are several distinct features between the two documents that set them apart: A living will trust primarily covers healthcare decisions while a power of attorney extends further, covering financial matters as well.
Why You Should Create a Living Will Trust and Power of Attorney
Legal documents cannot be understated when it comes to unexpected events or emergencies that leave us powerless to make decisions for ourselves. Without adequate planning in place, our loved ones may face considerable difficulties trying to navigate difficult situations without clear direction from us.
Failure to have a living will trust can result in confusion among family members regarding which medical treatments we would or wouldn’t want if incapacitated. This lack of clarity may result in unnecessary suffering as well as disputes among family members who may hold differing views regarding what should be done.
Doing without a power-of-attorney document means we have not legally designated someone as our authorized decision-maker in case we become incapacitated due to illness, injury, or any other circumstance – something that can delay key financial decisions and place assets at risk.
Why You Should Create a Living Will Trust and Power of Attorney
| Aspect | Living Trust | Living Will | Power of Attorney |
|---|---|---|---|
| Purpose | Manages assets during your lifetime and facilitates their transfer outside of probate. | Specifies healthcare preferences in case of future incapacity. | Authorizes a trusted individual to make decisions on your behalf. |
| Legal Entity | Revocable trust created during your lifetime. | Document that allows you to make advance decisions about your healthcare. | Empowers someone you trust to carry out trustee responsibilities. |
| Ownership of Assets | Holds assets within the trust. | Does not involve ownership of assets. | Provides assets for paying healthcare expenses. |
| Management | You can serve as trustee and manage trust assets. | No management of assets; focuses on healthcare decisions. | Trusted individual (agent) makes decisions. |
| Transfer Process | Assets can be transferred through trust administration process, avoiding probate. | Not applicable; focuses on medical care decisions. | Not applicable; focuses on decision-making authority. |
| Flexibility | Can modify or change the trust as needed during your lifetime. | Specifies advance decisions about medical care. | Allows you to make important decisions. |
| Pros | – Flexibility to modify the trust. – Assets can transfer outside of probate. | – Allows you to express healthcare wishes. – Specifies acceptance or refusal of medical care. | – Authorizes a trusted individual to act on your behalf. |
| Cons | – Doesn’t protect against creditors. – Assets within it can still be subject to estate tax. – Can be expensive to create. | – Not focused on money or property. – Solely addresses healthcare decisions. | – Decision-making authority may be limited to specific areas. |
Benefit Description
Control You and your loved ones have peace of mind knowing that your wishes will be honored should you become incapacitated
.
Reduce Stress Your loved ones will benefit from lessened anxiety during a difficult period. Cost Savings You could potentially save money on legal fees and court costs by forgoing guardianship and conservatorship proceedings.
Privacy Your medical and financial data will remain private and not be subject to public record.
Establishing a living will trust and power of attorney can offer many advantages for us and our loved ones. Primarily, it protects assets by authorizing someone we trust to make financial decisions on our behalf if we become incapable of making such decisions ourselves. This may help prevent any unauthorized access or misuse of funds during times of vulnerable times.
Second, having these documents in place provides peace of mind not only for ourselves but for our family members as well. Knowing there is a plan in case something unexpected occurs can ease tension and reduce uncertainty during challenging times.
Learn the process to create a Living Will Trust and Power of Attorney
Living Trust:
- Purpose: A living trust (or inter vivos trust) is established while you are alive. It allows you to transfer ownership of assets to the trust, which becomes the new legal owner of your property.
- Key Steps:
- Choose What Property Should Be Transferred: Identify the money and property you want to include in the trust. Generally, any property you hope to transfer outside of probate should be included.
- Identify a Trustee and Successor Trustee: Designate who will manage the trust assets (trustee) and who will take over if the initial trustee cannot fulfill their duties (successor trustee).
- Select the Beneficiaries: Determine who will benefit from the assets held within the trust.
- Create the Necessary Documents: Draft the trust agreement, specifying the terms and conditions.
- Transfer Assets: Transfer ownership of the identified assets into the trust.
- Note: Revocable living trusts (RLTs) can be modified during your lifetime but provide limited asset protection compared to irrevocable trusts.
Living Will:
- Purpose: A living will allows you to express your healthcare wishes in case of future incapacity.
- Steps:
- Fill Out a Form: Use a living will form or a program like WillMaker to write your healthcare preferences.
- Sign and Witness/Notarize: Sign the document and have it witnessed or notarized.
- Check State Legal Requirements: Ensure compliance with your state’s rules for finalizing a living will.
Power of Attorney (POA):
- Purpose: A POA authorizes a trusted individual (the agent) to act on your behalf in various matters.
- Process:
- Create a Valid Will Online: Start by creating a valid will online.
- Nominate a POA: Use a state-standardized form to nominate someone as your POA. Choose someone who will prioritize your needs above their own.
- Sign and Notarize: Once signed and notarized, this paperwork empowers your POA to take action under specific conditions.
Now that we understand the significance of legal documents, let’s explore their creation process. This typically entails several steps.
| Document Type | Purpose | Key Steps |
|---|---|---|
| Living Trust | Manages assets during your lifetime and facilitates their transfer outside of probate. | 1. Choose Property: Identify assets to include in the trust. 2. Select Trustees: Designate a trustee and successor trustee. 3. Specify Beneficiaries: Determine who benefits from trust assets. 4. Draft Documents: Create the trust agreement. 5. Transfer Assets: Move ownership into the trust. |
| Living Will | Specifies healthcare preferences in case of future incapacity. | 1. Form Completion: Fill out a living will form. 2. Signing and Witnessing: Sign the document and have it witnessed or notarized. 3. State Compliance: Ensure compliance with state rules. |
| Power of Attorney | Authorizes a trusted individual to make decisions on your behalf. | 1. Create a Valid Will: Begin by creating a valid will. 2. Nominate an Agent: Use a state-standardized form to nominate a power of attorney. 3. Sign and Notarize: Once signed and notarized, the paperwork empowers your agent. |
1. Do Your Research: Begin your estate planning process by becoming informed on the laws pertaining to living will trusts and powers of attorney in your jurisdiction.
2. Get Professional Advice: Consider consulting an experienced estate planning attorney who can guide you through this process based on your individual needs.
3. Collect Information: Once again, gather all of the pertinent data such as personal details, healthcare preferences, financial details etc that will be required when creating these documents.
4. Drafting: Work closely with your attorney to draft the living will trust document according to your wishes regarding medical treatment preferences.
5. Appointing Power of Attorney Agent: Appoint someone whom you trust completely as your power-of-attorney agent so they can make decisions on your behalf as needed.
6. Execution: Sign the documents according to all legal requirements such as witnesses or notarization.
As part of creating these documents, it is imperative that all legal requirements are fulfilled to ensure they stand up under scrutiny should any future inspection be necessary.
Choose the Right Person as Your Power of Attorney
Appointing someone as your power of attorney should not be made lightly. They will have considerable responsibilities and authority over your affairs, so it is vitally important that they consider multiple aspects when making this important decision.
Trustworthiness should always come first; find someone who will act in your best interests and fulfill all of your wishes diligently. Research their track record when handling financial matters or making important decisions.
Second, communication skills are of vital importance in choosing an attorney-in-fact to represent your interests with medical providers, financial institutions, and any other parties on your behalf.
Location also plays an integral part in choosing an advisor, so it may be more convenient for you to select someone who resides nearby or can quickly travel should prompt decision-making be required.
VII The Importance of Appointing Your Power of Attorney in Healthcare Decision-Making
Your power of attorney plays an invaluable role when it comes to healthcare decisions when you cannot. They serve as your advocate, making sure medical staff respect and adhere to any preferences for treatment options you’ve expressed in writing.
Communication between you and your chosen power of attorney regarding what medical situations they should advocate for or against should arise is of utmost importance to ensuring they can effectively represent your wishes if need be.
VII How Your Power of Attorney Can Assist in Financial Decision-Making
Your power-of-attorney agent also has authority over financial matters on your behalf if you become incapacitated, such as managing bank accounts, paying bills and taxes, selling assets as needed, etc.
To ensure the smooth handling of these responsibilities by your selected agent:
1. Provide them with complete information regarding all financial accounts. 2. Stay apprised of any changes or newly acquired assets. 3. Discuss any specific instructions or preferences concerning how finances should be managed during incapacitation.
4.Encourage open communication and regular updates between your power of attorney and other family members or trusted advisors.
IX The Importance of Revamping Your Living Will Trust and Power of Attorney
Establishing a living will trust and power of attorney is not an one-time task; instead, it must be reviewed periodically in order to reflect changes in your circumstances, wishes or legal requirements.
Life events such as marriage, divorce, the birth or adoption of children/grandchildren, significant financial changes or grieving for loved ones who have passed may require revisions to ensure your documents accurately represent current circumstances.
Keep copies of these documents in a secure place where they can be easily accessed by those who require them, informing key individuals of their existence and whereabouts ensures they can be easily found when needed.
How a Living Will Trust and Power of Attorney Can Protect Your Assets
Living will trusts and powers-of-attorney arrangements can protect your assets effectively by designating someone to act on their behalf during incapacitation – thus decreasing the chance for unauthorised access or misuse by third parties.
Setting clear instructions regarding how you want your assets managed can ensure they are administered in line with your wishes, even when you cannot convey them directly. This may help avoid conflicts among family members regarding how assets should be distributed or utilized when emotions run high and reduce disagreements among family members about asset distribution or use during difficult times.
How Can Living Will Trust and Power of Attorney Protect Your Family
Not only can these legal documents protect our assets, they can also ensure the well-being and interests of our family members. By setting clear instructions regarding healthcare preferences through a living will trust, we ease their burden when making difficult medical decisions on our behalf.
Appointing someone we trust as our power-of-attorney agent provides peace of mind to both ourselves and our loved ones by guaranteeing there will be someone acting in our best interests – something which could potentially help mitigate family disagreements over how decisions should be made, giving them more time to focus on supporting us during difficult times.
How a Living Will Trust and Power of Attorney Can Protect Your Legacy
Legacy is more than the assets we leave behind; it also encompasses values and wishes we wish to pass along to future generations. A living will trust or power of attorney can protect this legacy by making sure our wishes regarding medical treatment, finances and other crucial decisions are respected when we can no longer express them ourselves.
By setting forth our preferences in these legal documents, we provide clarity for our loved ones as to how they should react in various situations and safeguard our legacy. Doing this ensures it remains aligned with what is important to us and prevents unintended actions or results that run counter to what was intended.
Legal Requirements for Valid Living Will Trust and Power of Attorney Documents
To ensure the validity of your living will trust and power-of-attorney documents, it is crucial to understand the legal requirements specific to your jurisdiction. Though these may vary, some common elements include:
1. Capacity: At the time of creating these documents, it must be within your mental capacity to do so.
2. Witnesses: Most jurisdictions require at least two witnesses who are neither beneficiaries nor related parties as witnesses for verification purposes. 3. Notarization: Certain jurisdictions require notarization as an additional layer of authenticity.
4. Compliance with local laws: Be familiar with any specific legal guidelines or forms required in your location.
Consult with an experienced estate planning attorney in your region who can guide you through these requirements and offer expert guidance.
The Differences Between a Living Will Trust and Last Will and Testament
Both documents serve different functions in estate planning; both documents address significant aspects of estate management.
A living will trust is designed to address healthcare decisions during incapacitation by outlining your preferences regarding medical treatments and coming into force while you remain alive but are unable to communicate your wishes directly.
Last Will and Testament documents become effective upon death and address matters such as asset distribution, guardianship of minor children and estate administration.
Understanding these distinctions is critical in order to have all necessary documents in place in case of incapacitation during life or asset distribution upon death.
Conclusion
Establishing a living will trust and power of attorney is an integral component of planning for unexpected events. These legal documents serve to protect both our assets and family during times when we cannot make our own decisions.
By creating a living will trust, we can ensure our healthcare preferences are upheld even if they can no longer express them directly. Appointing someone we trust as power-of-attorney agent provides peace of mind knowing there is an authorized decision maker who will act on our behalf when needed.
As soon as they finish reading this article, I encourage all those reading to consult an experienced estate planning attorney and create a living will trust and power of attorney in order to protect themselves, their assets, family members and leave behind an enduring legacy that reflects your values during uncertain times.
Frequently Asked Questions
What Is A Living Will? A living will is a legal document that details your desires for medical treatment and end-of-life care should you become incapacitated in making decisions yourself.
What is a Trust? A trust is a legal arrangement in which a trustee holds and manages assets on behalf of their beneficiary(s).
What is a Living Will Trust?
A living will trust is a legal document that combines elements of both living wills and trusts, outlining your wishes for medical treatment and end-of-life care, while designating someone to oversee your assets if you become incapable.
What is a power of attorney?
A power of attorney is a legal document that grants someone else the authority to represent you in financial or legal matters.
What is a durable power of attorney?
Durable powers of attorney provide for continued authority even if you become incapacitated.
Why is having a living will important?
A living will is designed to protect your wishes regarding medical treatment and end-of-life care, even if you become incapacitated and cannot communicate them yourself.
Why is having a trust important?
Trusts can provide an effective means of safeguarding assets and making sure they are distributed according to your wishes.
Why is having a living will trust important?
A living will trust combines the benefits of both, providing assurance that your wishes regarding medical and end-of-life care are adhered to while your assets are managed according to your desires.
Why is having a power of attorney important?
An attorney-in-fact (also called power of attorney) allows someone you trust to make financial and legal decisions for you if you become incapacitated and unable to.