When people come to me for estate planning, they have some idea that powers of attorney, wills, and trusts are involved. They usually aren’t sure what the difference is between them, or, they have some misconceptions due to a lot of ‘fake news’ floating out there. (One of my favorite Twitter accounts is @badlegaltakes. It posts bad legal takes found all over the internet without comment, although the comments to the posts are sometimes hilarious.)
Without getting into whether you should or shouldn’t have these things, I just want to explain what they are so you can understand the difference.
Powers of Attorney. A power of attorney is when you appoint an agent to act on your behalf. ‘Agent’ is one of those Legalese words that means something slightly different and very specific in Legalese than it does in English. An Agent in the legal world is someone who can act on your behalf for whatever purpose you have described in the power of attorney. You can appoint an Agent to make healthcare decisions for you if you are unable to make your own decisions; you can appoint an Agent to handle your finances for you[1]; or you can appoint an Agent for a specific limited purpose, like going to the closing on a piece of real estate for you.
The important thing to note, especially with financial powers of attorney, is that the minute the person granting the power takes their last breath, the power goes away. A lot of people think they can pay Mom’s bills with Mom’s money after she dies because they have a power of attorney, but that’s not true. The power gets turned off along with Mom’s life.
Wills. This is the simplest to understand. A will is a formal document that gives instruction about who you want to be in charge and what happens to your assets/stuff and your minor children after you die. Bear in mind that even if Mom’s will says you get everything and you’re in charge, you don’t actually get anything and you’re not in charge until the Probate Court okays it. So don’t sell or give Mom’s stuff until you’ve probated her will.
Trusts. Trusts are by far the most complicated of the three. I won’t get into the different kinds of trusts right now, that’s a whole column (or maybe two) of its own. In general, however, a trust is its own entity. Think of a trust as a person you trust that you are creating to hold your money/real estate/stuff for you. A trust has its own tax id number (like a social security number), pays its own taxes, and can operate entirely independently of you. You get to create this trust-person’s brain, so you get to say what it does with your stuff. There are two main advantages of trusts: 1) Since the trust exists independently of you, if you are sick/disabled/missing/dead it keeps on managing your stuff the way you told it to; and 2) Since the trust exists independently of you, if someone wants your stuff, they can’t get it from you, since you don’t own it. It’s not technically your stuff anymore – it’s the trust’s stuff, the trust is just letting you use it.
In an over-simplified nutshell, powers of attorney are useful while you’re alive, wills are useful after you die, and trusts can do both.
There are advantages and disadvantages to all of these and to doing them in a particular way. Without knowing your particular circumstance I can’t tell you which you should have and why. A lot of people try to save money by doing this on their own with forms they find on the internet, and almost invariably they mess something up this way and they (or their heirs) end up paying someone like me more money to fix the mistake. Better to do it right in the first place, I say.
[1] And you can say that they can’t handle your finances for you unless you are unable to do it yourself, or you can say they can handle your finances for you now because it is easier and/or more convenient. Some people, for example, are mentally fine but physically disabled and the act of getting to the bank is an ordeal.
Nothing in this article should be construed as legal advice. It is being offered for informational purposes only.
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