Why You May Need a Trust in Addition to a Power of Attorney

While everyone should have a durable power of attorney that appoints someone to act for them if they become incapacitated, 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. We all are at risk of incapacity from illness or injury, whether temporary or permanent. 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 remedy of seeking court-appointed conservatorship is expensive, cumbersome, and time-consuming. It’s best that you pick your own person or people for this role.

Nevertheless, however important taking this step can be, it’s not always enough. There are several reasons for this. First,  financial institutions sometimes don’t honor older powers of attorney. Second, the Power of Attorney may not grant the specific authority needed to handle a specific transaction. Third, the Power of Attorney ends at the death of the person who established the Power of Attorney (the principal) so it cannot be used to transfer assets after death. 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Financial institutions often reject older powers of attorney, claiming that they can’t know whether the document has been revoked since first signed. Financial institutions can be uncomfortable honoring powers of attorney because they do not want to be held liable for any malfeasance by the agent appointed under the document. In the opinion of most estate planning attorneys, such institutional rejection is contrary to law, but there is no good remedy when this occurs since any lawsuit against the likes of Bank of America or Fidelity will be expensive and time-consuming.

Fortunately, there are three ways to avoid this institutional intransigence:

  • Refresh your documents periodically. Financial institutions are more accepting of newer documents than older ones, so it’s a good idea to execute new durable powers of attorney every five years. Of course, this is perverse. If the power of attorney is being used because of your incapacity due to dementia, you are more likely to have been experiencing cognitive challenges a year prior to its use than ten years earlier.
  • Provide your Power of Attorney to your financial institution for their approval before it is needed   Contact each financial institution where you have an account and provide your Power of Attorney. They will often tell you they need to have their legal department review and approve it. It will save time if you do this BEFORE the agent needs to use the Power of Attorney. In addition, the financial institution may have additional specific forms or procedures they want you to sign or implement.
  • Create a revocable trust. Financial institutions seem to accept revocable trusts more readily than durable powers of attorney. Revocable trusts have the added advantage of continuing after your death and providing for your agent (trustee) to act with you or someone else as a co-trustee. If you decide to create a revocable trust, it is recommended that you also have a Power of Attorney.

A Trust Provides Financial Protection
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 avoid both. An important step is to name an agent under a durable power of attorney. However, sometimes those agents don’t step in until it’s too late and the senior has already lost a significant amount of money.

A co-trustee on a revocable trust, however, is already named on the accounts and assets in the trust. Even if the co-trustee doesn’t take an active role, he or she can monitor the accounts to make sure nothing untoward is occurring. A co-trustee can also work with you to become familiar with your assets, your financial advisors, and your specific financial plans and investments.  Further, when it’s necessary to step in, the co-trustee can do so immediately and seamlessly. If you have also named the co-trustee as an agent under your Durable Power of Attorney, that person can deal with assets and accounts you own outside of the trust as well as in the trust.

Conclusion
For these reasons, revocable trusts in addition to durable powers of attorney, are often a good planning tool.  However, two caveats are in order: First, trusts only control the accounts actually held by them. So, for the trustee to be able to manage the assets, you must retitle your accounts into your trust. Alternatively, your trust can be the beneficiary of your accounts at your death. In that case, your agent under the power of attorney can deal with those accounts during your lifetime.

It is important to remember that if you have a revocable trust, you still need a durable power of attorney. This is for two reasons: First, you may not have transferred all your accounts into the trust and will need to give your agent control over those accounts and the ability to transfer them into the trust.  Your agent under your durable power of attorney can also handle the signing of legal documents on your behalf outside of the trust, including signing income tax returns, deeds, contracts, and other legal instruments.

We can help you determine if a revocable trust is right for you. Call our office to schedule an estate planning consultation. We will review any existing documents you may already have and recommend options for any changes, updates, or additional documents.

According to a recent national study, nearly a quarter of Americans aged 50 and older say they – or a loved one – needed long-term care in 2022. The findings further suggest that seniors and their caregivers could benefit from more consumer-friendly information and guidance about long-term care services, a need researchers say will grow exponentially in the future.

Finding Long-Term Care Causes Wide-Ranging Emotions

Results showed that people looking for long-term care experienced a range of emotional responses in searching for a provider:

  • 53 percent of respondents reported feeling anxious about the process 

  • 52 percent described feeling frustration

  • 23 percent said they were confident during the process of long-term care for themselves or their loved one

  • 23 percent of respondents felt “at peace” about the choice they made for long-term care

  • Only 14 percent of respondents reported feeling happy

Respondents Want to Feel Prepared When Deciding on Long-Term Care

Researchers found that respondents want advice for seeking long-term care when it comes to the following:

  • 92 percent wanted to know what types of long-term care services are available
  • 90 percent wanted more information about paying for long-term care
  • 90 percent said advice and support on long-term care would have been helpful to them
  • 88 percent needed help understanding whether their personal or health care needs require long-term care
  • 88 percent of those surveyed also said they needed help choosing a long-term care provider
  • 86 percent said having someone to listen to them when seeking long-term care services would have been important to them
  • 84 percent of respondents wanted help deciding whether to pursue in-home care or community-based services (i.e., nursing home care)

Paying for Long-Term Care

A large number of respondents reported needing more information about how to pay for long-term care.

Of the people who were surveyed, 63 percent said it was extremely important to have additional details about the various types of care options available. Meanwhile, 69 percent said it was extremely important to have further details about the cost of care and their payment options.

To learn more about long-term care services and options, it is often helpful to work with an elder law attorney in the community who can help you assess the benefits and services available to you and create a plan for how to pay for long-term care. At Wenzel Bennett & Harris, P.C., we offer a consultation called a “Long-Term Care Consultation” in which we meet with clients to help create a plan for long-term care. If the client has a need for care in a nursing home or skilled care at home, we will work with the client and their family to explain how the Medicaid program works , review the clients’ assets and income, and assist the client in obtaining Medicaid benefits, where applicable. Many families are surprised to learn that they may qualify for benefits they weren’t aware were available to them. In addition, we help clients to make sure they have a good plan in place should it become necessary for them to have long-term care in the future. This often includes having Powers of Attorney for both financial and health care needs, so that appropriate agents are granted the authority and have the information needed to obtain benefits in the future, should that become necessary. If you or a family member would like to schedule a Long-Term Care Planning Consult, please contact our office at 989-356-6128.

If you have specific questions about your situation or would like to learn more, reach out to the team at WBH here.

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