A trust is a legal arrangement in which a grantor allows a trustee to manage the distribution of assets to trust beneficiaries. In some cases, the trustee cannot perform his duties unless the grantor uses a power of attorney to provide the trustee with special authorization to perform certain legal acts, such as selling assets titled in the grantor's name, that otherwise only the grantor would be able to perform.
Power of Attorney
A power of attorney must be in writing and must list the principal, who is delegating power; the agent, the person to whom power is delegated; and the specific powers delegated. In the case of a trust, the principal is usually the grantor and the agent is usually the trustee. The document authorizing the power of attorney must be either notarized or witnessed by two witnesses, depending on the law of the state in which it is executed. The principal can revoke the power of attorney at any time as long as he is not incapacitated -- that is, if he is not mentally incompetent or unable to communicate his intentions. A power of attorney may state that it remains valid even if the principal becomes incapacitated, or it may state that it lapses automatically when the principal becomes incapacitated.
Two types of trusts are possible -- revocable trusts and irrevocable trusts. Revocable trusts are more likely to require the use of a power of attorney by the trustee because, unlike the assets of an irrevocable trust, the assets of a revocable trust are typically titled in the name of the grantor, not the trustee.
The Uses of a Power of Attorney for a Revocable Trust
In some revocable trusts, the grantor and the trustee are the same person. If they are not, however, and if trust assets are titled in the grantor's name, the trustee may need power of attorney to manage trust assets. He may need it, for example, to withdraw trust funds for distribution to beneficiaries, or to invest trust assets if the trust deed authorizes him to do so. If the grantor becomes incapacitated, a pre-existing power of attorney can be used to allow the agent to revoke the trust on behalf of the grantor -- to free up funds to pay the grantor's medical bills, for example.
Both trustees and agents are considered legal fiduciaries, meaning that they must perform their duties in the best interests of those they represent -- the beneficiaries and the principal, respectively. A fiduciary can face civil and criminal liability for misconduct, and can be removed by court order. This could become relevant if, for example, a trustee with power of attorney misuses the grantor's assets while he is incapacitated.