If you or a loved one have a California revocable trust, you may be wondering how your assets are managed upon incapacity. Assets are either managed through a Power of Attorney if they are in just your name or by a Trustee if they are owned by a revocable trust. Over the years, I have found that there’s a lot of confusion about what a Power of Attorney agent is responsible for doing and what a Trustee is responsible for doing. Many people confuse the two. The purpose of this blog post is to lay out in layman’s terms the difference between a Power of Attorney and a Trustee.
First, a Trustee is the person or entity that protects and manages the assets in a trust. For a revocable living trust, that Trustee is usually the person that created the trust. The trust document will have a successor trustee or set of successor trustees. The successor trustee usually takes power when the person that created the trust either becomes incapacitated or has died. The Trustee only manages the assets that are owned by the trust, not assets outside the trust. Common assets that are owned by a trust include things like real estate, bank accounts, non-retirement brokerage accounts, LLC interests, stocks, corporate interests, and personal property. Trusts can also own other types of assets such as cars, boats, annuities, intellectual property, or even a note or partnership interest.
If the asset is owned by the trust, then the Trustee is in charge of that asset. The Trustee can typically borrow, sell, encumber and invest in these types of assets (if the trust document gives them power to do so). Things that cannot be owned by a trust typically include retirement accounts and sometimes life insurance. There are special types of trusts that can own insurance. However, most revocable living trusts are not of that species of trust.
In contrast, a Power of Attorney does not control anything that is owned by your trust. The Power of Attorney controls assets that are not inside your trust such as retirement accounts, life insurance, sometimes annuities, or even bank accounts that are not in trust title. A Power of Attorney agent (if granted authority) can also have power over your tax return filings. If granted authority, your Power of Attorney agent can also “disclaim” property left to you or even apply for governmental benefits on your behalf. A Power of Attorney may also be given authority to create further trusts for you for estate planning purposes.
Other common powers that a Power of Attorney agent might exercise are things like:
- Authority over real property transactions
- Transactions regarding tangible personal property
- Stock and bond transactions
- Commodities and options transactions
- Banking and other financial institution transactions
- Business operating transactions
- Insurance transactions
- Estate and trust transactions
- Claims and litigation
- Personal and family maintenance transactions
It should however be noted that a Power of Attorney is only as good as its drafting. In California, the most common Power of Attorney is the Statutory Power of Attorney. This Power of Attorney is laid out in the state statute. It is what most banks and financial institutions are familiar with and therefore it has benefit on that merit.
However, Statutory Power of Attorney should be augmented with a custom drafted Expanded Durable Power of Attorney. The reason for this is there are some other powers that you’ll want to include if you’re ever incapacitated. Such powers may include things like:
- The ability to “disclaim” assets
- The ability to provide care for a pet
- The power to create a trust
- The Power to fund the trust
- The power to manage digital assets
- The power to access a safety deposit box
- The power to loan or borrow money
- The power to deal with your spouse
- The power to make gifts
- The power to provide support for dependents
- The power to provide for recreation travel
- The power to provide to religious or spiritual needs
- The power to provide for your companionship
- The power to make advance funeral arrangements
- The power to employ and discharge personnel
- The power to sign documents
- The power regarding access to your mail
- The power regarding your memberships
It’s important to highlight that if a particular asset is not owned by your trust, then access to that asset will most likely lay with your Power of Attorney agent (not your Trustee) if they have been given authority over that type of asset in your POA document. As you can see, it is also important to note that there are many things that a Power of Attorney can do that aren’t necessarily traditionally asset related or financial in nature.
To learn more about making sure that your Power of Attorney and Trust contain the right provisions to protect you, call (760) 448-2220 to schedule a time over the phone or in person with Brenda Geigerto discuss. You may also reach us directly through our contact page.