The advantages of giving someone a power of attorney over your financial affairs are similar to those gained by naming a trustee to manage assets you’ve placed in a trust — until you die. Both options allow someone else to act in your place if you become incapacitated and can’t take care of your affairs yourself.
Control of Assets
Both a power of attorney and a revocable living trust allow you to maintain control over your own assets until you can no longer do so. You can give someone power of attorney on a “springing” basis, specifying that his powers only go into effect when you become disabled. You can also grant someone a durable power of attorney, authorizing him both now and in the future, should you become incapacitated. If you establish an “inter vivos” or revocable living trust, you continue to control the assets you place into it as long as you are able. You would name an alternate trustee, someone other than yourself, to take over for you when and if you can no longer manage the trust yourself. However, if you establish an irrevocable trust, this requires that you surrender control of your assets to an independent trustee at the trust's inception.
Ownership of Assets
Neither your trustee nor your agent, the person to whom you’ve given power of attorney, owns your assets. However, when you choose an irrevocable trust over a revocable one, you sign your assets over to the trust entity and the decision is final. You no longer own the assets and you generally can't take them back. With a revocable trust, you retain the right to remove assets out of the name of the trust and back into your own name. As long as you’re competent, your trustee can’t interfere. However, he can sell trust assets without your consent if you become disabled. Your agent with springing or durable power of attorney privileges can do the same.
Your trustee has full authority to act on behalf of your trust assets, but the agent you named in your power of attorney may not. Some financial institutions do not recognize powers of attorney. If any of yours do not and you become incapacitated, your agent will have to petition the court to appoint him as your guardian instead so he can manage those particular accounts for you. Otherwise, unless you’ve limited your agent’s authority to certain actions or accounts, your POA authorizes him to deal with all your business and financial holdings. Your trustee only has authority to deal with those assets you placed in your trust. If you neglected to transfer an asset or account into your trust, either a revocable or irrevocable one, the court would still have to appoint a guardian to manage them if you can’t.
Effect of Death
A power of attorney becomes void when you die. If you also named your agent as the executor of your will, his authority will continue, but it becomes limited to settling your estate, overseeing the probate process and distributing your assets to your beneficiaries. If you did not appoint the agent as your executor, your named executor will take over for him. Both your alternate trustee for a revocable trust and your independent trustee for an irrevocable trust remain in authority after your death. They will deal with your assets according to whatever terms you set in your trust documents. The assets placed in your trust bypass probate. Other assets become part of your estate for your executor to deal with.
References & Resources
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