Author: Louise Paglen, Estate Planning & Elder Law Attorney, The McIntosh Law Firm, P.C.
A durable power of attorney allows you to appoint someone you trust to handle financial and legal matters if you become incapacitated. We are all at risk of incapacity from illness or injury, whether temporary or permanent and the risk increases as we get older. Without someone in place to handle legal and financial matters, bills go unpaid, contracts can't be signed, homes can't be refinanced, leases can't be terminated and investments go unmonitored. The remedy of seeking court-appointed guardianship is expensive, time-consuming and stressful. It's best to pick someone you trust to handle your affairs in the event you are unable to do so yourself.
Unfortunately, having a power of attorney, may not always be enough. Financial institutions often will not honor older powers of attorney and agents sometimes don't step in until it's too late.
Fortunately, there are three ways to avoid this institutional intransigence:
- Refresh your documents periodically. Financial institutions are more accepting of newer documents. Consider executing new durable powers of attorney every five years.
- Create a revocable trust. Financial institutions seem to accept revocable trusts more readily than durable powers 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.
A Trust Also Provides Financial Protection
As we age, we become increasingly susceptible to making financial mistakes and falling victim to scammers. A co-trustee on a revocable trust may not take an active role, but can monitor the accounts to make sure nothing untoward is occurring. Furthermore, the co-trustee can step in immediately if necessary.
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, delaying access to accounts and prohibiting the agent from protecting the accounts.
Conclusion
Revocable trusts often work better than durable powers of attorney. However, trusts only control the accounts actually held by them. So, for the trust to work, you must retitle your accounts into your trust.
It is still important to appoint a durable power of attorney. Your trust only governs assets that are titled in the name of the trust. Your agent under your durable power of attorney can also handle legal matters on your behalf, such as signing your income tax returns.