In planning how to have your financial affairs managed by others if you become unable to manage your financial affairs, it’s not enough simply to have a revocable living trust because there are many financial transactions that legally cannot be handled by the trustee of your living trust. For example, if you become unable to serve as trustee due to illness, your successor trustee cannot do any of the following as trustee:
- Prosecute or defend a personal injury lawsuit;
- Invest in or withdraw money from your IRA, 401(k), or pension plans;
- Sign your income tax returns or represent you in tax disputes;
- Engage in Medi-Cal planning;
- Gain possession of those of your assets not titled in the name of your trust; etc.
Hence, a durable general power of attorney is an essential part of a Californian’s estate plan. In a durable general power of attorney, you authorize another person to act as your agent (also known as your attorney-in-fact) in the event that you become substantially unable to manage your financial affairs or substantially unable to resist the fraud or undue influence of others.
Some additional examples of powers that can be specified in a durable general power of attorney include:
- The power to engage in gift giving in order to reduce possible estate taxes on your death;
- The power to continue any pattern of charitable giving or pattern of gifting to your family that you want to continue if you became ill;
- The power to engage in so-called Medi-Cal planning;
- The power to amend the estate tax portions of your living trust (to give flexibility to your documents in the event that, while you were incompetent and unable to amend your trust yourself, Congress changes the estate tax provisions from what you anticipated in how your trust was written);
- The power to create a special needs trust in your living trust for any beneficiary who becomes disabled and in need of a special needs trust at a time when you were not competent to amend your trust;
- The power to transfer your assets to your living trust;
- The power to invest, manage, and make withdrawals from your IRA, 401(k), annuities, and pension plans; etc.
Similar to your living trust, your durable general power of attorney should make clear whom you wish to serve in role of managing your financial affairs, whom the alternates are, how (and under what circumstances) that person can be removed, and to whom that person must account, report, and consult.
Coordinating the terms of your durable general power of attorney and living trust protects yourself in the event you become seriously ill.
Copyright James J. Phillips January 2017