Many clients become confused between the difference of the duties and responsibilities of the person you name as a Durable Power of Attorney (“DPOA”) and the person that you may name as the Trustee or Successor Trustee to your Revocable Living Trust. Let’s review the differences here.
Often we’ll receive a call from a client’s adult child asking for the Durable Power of Attorney because the client is losing capacity. The child wants to help with the investments and finances and believes he needs the DPOA. When he calls, we instruct that not only will he need the DPOA, but he needs to be installed as the trustee to his parent’s revocable trust.
The person you name in your DPOA document is referred to as your “Attorney-in-Fact.” Your Attorney-in-Fact does not have to hold a law license to be named as such; they merely need to be named in a duly executed DPOA document. Your Attorney-in-Fact has all of the powers enumerated in the DPOA document, which vary from document to document. Some DPOAs contain broad powers to conduct almost anything that you could do yourself. These powers may include entering into contracts, enforce legal rights and sell commercial real property that you own.
Other DPOAs are limited in scope. An example would be to name someone to write your checks and pay your bills while you are on vacation for two weeks in Europe, after which time the DPOA terminates.
Keep in mind that even a broadly drafted DPOA is only good so long as you are alive. The “durable” portion in the name of the document indicates that the powers survive your incapacity. If the document is not “durable,” then upon your incapacity all of the powers in the document cease. Even with DPOA documents, upon your death the powers all cease.
The DPOA document often gives the Attorney-in-Fact the powers to transact business on accounts that you hold in your name individually (or in certain cases jointly).
So how does the trustee of the trust interact with the DPOA?
When you create a revocable living trust and fund it with your assets that would normally be subject to a probate process, the trustee of the trust governs the investment and distribution of those assets. Your bank accounts, investment accounts, real estate and partnership interests transferred to your revocable trust are usually under the power of your trustee, not your DPOA.
Even when you have a fully funded trust, however, there remain assets subject to the DPOA. Such assets include IRA and 401(k) accounts, annuities, life insurance policies and other assets that are not normally transferred into your trust. Here you need a DPOA in order to take care of regular business. Suppose, for example, that you become incapacitated and you have not withdrawn your required minimum distribution for the year under your IRA. Your Attorney-in-Fact under your DPOA could do that for you. Your trustee can’t because your IRA is usually not owned by your trust.
Although the state laws surrounding the use of Durable Powers of Attorney have been recently modified and in many cases strengthened, it remains difficult to use a DPOA in certain instances. Many brokerage houses and banks, for example, will not honor a DPOA that is stale or not updated to current state law, or does not contain certain explicit direction regarding your accounts.
The problem with DPOA documents is that the banks and financial institutions fear liability. If someone presents a fraudulent DPOA and withdraws money from your bank account, the bank could be held liable to you. Consequently, banks and other financial institutions closely scrutinize DPOA documents, and usually won’t immediately act upon them when presented.
Your Successor Trustee usually does not encounter the same problems that your Attorney-in-Fact encounters when trying to transact business for you if you are incapable. This is due to the fact that the assets you own are transferred to your Revocable Trust. The brokerage houses and banks want a Trustee to tell them what to do with the assets. The brokerage houses and banks are not as fearful of liability for the actions of the Trustee, since you transferred the assets during your lifetime when you had full capacity. The brokerage house and banks can hold a copy of your trust or affidavits of your trustee to protect them from liability.
Trusts are therefore preferable vehicles for many of your assets for purposes in the event you should become incapacitated.
Because both the DPOA and the trust are important documents, many estate plans include both documents in a trust package, along with pour over wills, health care surrogates, living wills and other ancillary documents.
The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.
© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.