An important, yet sometimes misunderstood, document estate planning attorneys prepare is a power of attorney. A power of attorney (or “POA”), either for financial or health care matters, is an integral part of an estate plan. For this reason alone, it is important to review your POAs to ensure that the individuals named will be willing and able to serve if needed. Here we discuss the differences between a Trustee and an agent under a financial POA, and the importance of keeping each up-to-date .
UNIFORM STATUTORY FORM POWER OF ATTORNEY:
California Probate Code Section 4401 provides information that must be contained in a power of attorney created in California. The statutory form allows a person (the “principal”), to designate a POA agent to make financial and legal decisions if the principal becomes unable to do so during his or her lifetime.
We recommend using the Uniform Statutory Form Power of Attorney because it contains an enforcement clause. If any person or company refuses to honor the agent’s authority under the statutory POA, the court will issue an order mandating accepting the agent’s authority and the court can award attorney’s fees against the person or company that refused to honor the agent’s authority.
There are different types of POAs. Many POA documents are drafted to only become effective when the principal is certified by two physicians or psychiatrists as unable to make financial or legal decisions. This type of POA can help avoid a conservatorship court proceeding. For those who have a trust, it allows your agent to make legal decisions on your behalf pertaining to assets not owned by the trust. However, the agent must obtain the two certifications from medical doctors before the POA becomes effective.
The other type of POA is an immediately effective power of attorney. The designated agent is able to serve upon the principal’s signing, without any doctor’s certifications.
An agent under a financial POA is able to assist the principal in paying bills and executing documents necessary to provide for the principal’s care. An agent is also able to transfer any assets that are outside of a trust into a trust for the benefit of the principal. This is especially important if the individual has assets in his or her name alone that could cause a probate upon the principal’s death.
THE DIFFERENCE:
The power of attorney is strictly limited to non-trust assets. For assets titled in a trust, the POA document will not authorize the agent to access those assets. Trust assets can only be accessed by the Trustee. This is why many people name the same individuals as agents under the power of attorney and as successor Trustees of the trust. If the principal is certified by two medical doctors, the trust’s Successor Trustee will become Trustee. However, if the principal merely executed an immediately effective POA, but remains Trustee of the trust, the power of attorney agent will not be able to access trust funds.
TRUSTEE:
The “Trustee” is the manager of the trust. Usually the Trustor serves as the initial Trustee. The Trustee manages and distributes the trust income and/or principal for the benefit of the Trustor, the creator of the trust. The Trustor-Trustee should ensure that he or she transfers assets that can be owned by the trust into the name of the trust. As a reminder, assets titled in the trust are exempt from probate court proceedings.
If a Trustor-Trustee becomes unable to manage his or her own trust assets, as determined by two medical doctors, the trust’s successor Trustee will become the new Trustee. Or, if a Trustor-Trustee decides he or she no longer wants to manage the trust assets, he or she can resign as Trustee and delegate Trustee duties to a successor Trustee. The new Trustee will have access to the trust assets and has a duty to manage them for the benefit of the Trustor.
Alternatively, a Trustor-Trustee who needs some assistance in managing the trust can appoint a co-Trustee to serve with him or her in managing trust assets.
When a Trustor is no longer serving as Trustee, the new Trustee will need to obtain a tax identification number from the IRS for the trust. The new tax ID number will be used to retitle trust assets into the name of the new Trustee.
There are many factors to consider when drafting the financial POA and Trustee provisions. Legally documenting your intentions beforehand will make enacting a power of attorney more simple, and/or can ensure your that successor Trustee will have the authority he or she will need to take care of you and your assets. If you would like to meet with us to discuss how these matters may affect you, please call us at (858) 481-2880 to schedule an appointment.