A Durable General Power of Attorney (POA) is a part of virtually every estate plan. The POA allows the person who signed the document (the “principal”) to designate another (the “agent”) and to empower the agent to transact financial and other business on behalf of the principal. The main reason to do so is to avoid having to ask the probate court, in an expensive and time-consuming guardianship proceeding, for that authority if the principal becomes unable or incapacitated.
Some estate plans also include living trusts to avoid probate and the need for guardianship, since the successor trustee can manage the assets in the trust if the person who established the trust becomes unable or incapacitated.
What many people don’t realize, however, is that the agent under a POA does not have power to control assets in a trust.
It is only the trustee that has that power. Thus, if mom’s checking account is in the name of her trust where she is the trustee and she develops dementia, the authority she granted via her POA will not be sufficient to allow the agent under that POA to sign checks on the trust account. Only a trustee (or a successor trustee) can do that.
For a successor trustee to gain authority, the original trustee (Mom in this example) must resign or, if that is not possible, the provisions in the trust for trustee succession must be followed. Commonly the signed statements of one or more physicians attesting to the incapacity of the original Trustee (Mom) are required. These statements, along with a copy of the trust, then become the written authority for the successor trustee to exercise authority over trust assets.
That is why it is sometimes a good idea to make the trust the “Payable On Death” beneficiary of such assets, rather than to retitle a checking (or other) bank accounts to a trust. That way, the POA agent can manage the accounts directly and, when Mom dies, the money flows into the trust for distribution outside of probate.
- Posted by David Myers