Do You Need a Revocable Trust?
Everyone should have a durable power of attorney that appoints someone to act for them should they become incapacitated, however, in some circumstances it is not enough. In these cases, a revocable trust can help.
A durable power of attorney allows you to appoint someone you trust to step in for you to handle financial and legal matters if you become incapacitated. Everyone is at risk of incapacity from illness or injury, whether temporary or permanent. The current state of the world, global pandemic raises this risk and of course, this risk rises as we get older. Without someone in place to handle legal and financial matters, bills can go unpaid, contracts can’t be signed, homes can’t be refinanced, leases can’t be terminated, investments go unmonitored and unadjusted, and families often fight over who is in charge.
The alternative is your family or loved ones seeking court-appointed conservatorship. This is expensive and time-consuming. It is in everyone’s best interest that you pick your own person for this role.
While this is important, it’s not always enough. Financial institutions often don’t honor older powers of attorney and agents sometimes don’t step in until it’s too late. These problems can be remedied through the use of a revocable trust.
Powers of Attorney Can Be Rejected
Financial institutions often reject older powers of attorney; they have no way to know whether the document has been revoked since its original signature. Sometimes the institution will require the drafting attorney to attest to the fact that the document hasn’t been revoked. The attorney may not have met with the client for many years and has no way of knowing everything the client has done during that time.
Financial institutions are uncomfortable honoring powers of attorney because they do not want to be held liable for any malfeasance by the agent appointed under the document. Most estate planning attorneys agree that this institutional rejection is contrary to the law. There is no good remedy for this situation when it occurs, filing a lawsuit against a large bank is expensive and would be time-consuming.
Refresh your documents periodically. Financial institutions are more likely to accept newer documents than older ones. It’s a good idea to execute new durable powers of attorney every five years.
Use the financial institution’s forms. Many banks and investment companies have developed their own durable power of attorney forms. They are more comfortable accepting their own forms than general ones you may have found online or the one your attorney prepared. Contact each financial institution where you have an account and ask whether it has a durable power of attorney form. You will still need a general durable power of attorney since the financial institution’s form only governs accounts held at that institution.
Create a revocable trust. Financial institutions accept revocable trusts more easily than a durable power of attorney. Revocable trusts have the added advantage that you can appoint a co-trustee to serve with you so that if you become incapacitated, the co-trustee can step in and act.
As we age, we all become increasingly susceptible to making financial mistakes and falling victim to scammers. Having a financial advocate in place can help you avoid both. An important step is to name an agent under a durable power of attorney. However, such agents often don’t step in until it’s too late and you or a loved one may have already lost a significant amount of money.
A co-trustee on a revocable trust is already named on the accounts in trust. Even if the co-trustee doesn’t take an active role, he or she can monitor the accounts to make sure nothing strange is occurring. When and if it’s necessary to step in, the co-trustee can do so immediately and seamlessly. In contrast, an agent under a durable power of attorney must present credentials to the financial institutions and go through the institution’s vetting procedure, this delays access to the accounts.
For these reasons, revocable trusts often work better than durable powers of attorney. However, be aware trusts only control the accounts actually held by them. So, for the trust to work, you must retitle your accounts into your trust.
Even if you have a revocable trust, you still need a durable power of attorney. This will cover any accounts that were not transferred into the trust. Also, the trust only governs financial matters. Your agent under your durable power of attorney can also handle legal ones on your behalf, including signing your income tax returns.
Call the Law Offices of Debra G. Simms at 386.256.4882 to learn more.
This blog post is not case-specific and is provided only for educational purposes and is not intended to provide specific legal advice. Blog topics may or may not be updated and entries may be out-of-date at the time you view them.