Wills vs. Trusts, Financial Powers of Attorney vs. Health Care Powers of Attorney, Testamentary Trusts vs. Living Trusts, and Revocable Trusts vs. Irrevocable Trusts

A Will is a legal document naming a Personal Representative to manage your estate upon your death. In addition to asset distribution, a Will may also name guardians for any minor children and give instructions for the disposition of remains.

If you have privacy concerns, you may prefer a Revocable Living Trust instead of a Will, which is a public document. A Revocable Living Trust might also be a better option if you own real estate outside of Washington or would simply like to avoid the long and often costly process of probate. We can review your situation to determine the strategy that best aligns with your particular needs and objectives.

DO I NEED A DURABLE POWER OF ATTORNEY HEALTH AND FINANCES? It is difficult to imagine the possibility of becoming incapacitated and unable to make your own decisions, but failure to appoint a Power of Attorney makes you extremely vulnerable to the possibility of court-appointed guardianship. A guardian is someone who is appointed by the court and tasked with handling your medical and financial affairs when you can no longer do so on your own. By proactively choosing your Power of Attorney you can ensure that this important job goes to the person you have chosen.

Not choosing your Power of Attorney can result in the appointment of a stranger. Someone who doesn’t know anything about you could be appointed to handle decisions about your health and finances. In essence, you may lose all of your rights by failing to address this critical aspect of the estate planning process, whereas taking matters into your own hands preserves your rights and allows you to choose, not the court.

The authority given to a Power of Attorney can be limited or general. A limited Power of Attorney allows the person of your choosing (known as the attorney-in-fact) to act on your behalf in limited situations, such as when you are traveling or otherwise unavailable to sign checks, conduct property transfers, or authorize limited actions. A general Power of Attorney, on the other hand, basically transfers all powers and rights to the attorney-in-fact, who can then make all decisions related to your health care and/or finances.

A POWER OF ATTORNEY FOR FINANCES VS. HEALTH CARE. Your person of choice may have control over your finances, medical care, or both. A Power of Attorney for finances is a legal document that gives the attorney-in-fact the right to control your financial affairs only, whereas a Health Care Power of Attorney authorizes control over your medical care. It is possible, but not required, for one named individual to be given both Powers of Attorney.

TRUSTS. A Trust is a legal document created by one party that holds property for the benefit of another party. The creator, known as the Trustor, transfers property to a Trustee, who then holds that property for the Trustor’s beneficiaries. Although the Trustee receives legal title to the property, they are obligated, by law, to act in accordance with the terms outlined by the Trust document.

There are two main types of Trusts: Revocable and Irrevocable. Revocable Trusts, commonly known as Living Trusts, give total control to the Trustor during their lifetime. The Trustor can continue to amend the Trust and can revoke or terminate it at any time as well. An Irrevocable Trust does not have this flexibility but it does allow the Trustor and their beneficiaries to avoid the public, often time-consuming, and costly process of probate.

REVOCABLE VS. IRREVOCABLE TRUSTS. A Revocable Trust allows the Trustor to maintain complete control over their assets, and still avoid probate. Irrevocable Trusts transfer control of property from the Trustor to the Trustee. Once an asset is placed in an Irrevocable Trust, it is no longer considered the property of the Trustor, and the Trustee gains full control. Furthermore, the Trust most often cannot be amended by the Trustor once created, and the Trustee and Trustor cannot be the same person, which is not the case with Revocable Trusts.

By placing assets in an Irrevocable Trust, the Trustor may become eligible for certain means-tested benefit programs, such as Social Security Disability or Medicaid. Since placing property into an Irrevocable Trust means it no longer belongs to the Trustor, the value of that asset cannot be counted against them.

Although Trusts usually cost more to set up than Wills due to their more complex nature, the cost savings are usually realized on the back end through the avoidance of probate.

If you have questions about Wills, Powers of Attorney, Trusts, or other estate planning tools and techniques, give us a call at 253.858.5434 to set up an appointment today.