Hello. My name is Kyle Krasa and I’m an estate planning attorney in Pacific Grove, California. I’m certified by the state bar of California, as a legal specialist in estate planning trust and probate law. The purpose of this video is to give you general information about an important aspect of estate planning law so that you can be prepared when working with your own attorney. Watching this video does not establish an attorney client relationship. The law is far more complex and nuanced than can be explained in a few short minutes. As a result, before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. With that understanding, I hope you enjoy my video and you find it informative. Thank you.
A good comprehensive estate plan will include three key documents that will name someone who will be able to manage your property either during your incapacity or upon your death. And these three key documents are: your living trust, your general durable power of attorney, and your will. Now on the surface, it seems that these three documents are all doing the same thing: naming someone to manage your property in the event of your incapacity or death. But there are subtle distinctions between these three documents, which are very important to understand. And hopefully this video will clear up any confusion about what these three documents do.
So the trust appoints a trustee. So the trustee will manage assets of the trust.
The power of attorney will appoint an agent, or sometimes we refer to the, uh, that person as an attorney, in fact.
And the will, will appoint an executor. And sometimes we refer to that person as a personal representative.
So we have these three key roles: a trustee for a trust, an agent on a power of attorney and executor on a will.
Now a trust will apply during your lifetime and upon death. So a trust applies both while you’re living and after you passed away, but only for trust assets. So trust only applies to assets that are in the trust.
A power of attorney will only be applicable during your lifetime. Once you pass away, the power of attorney no longer has any applicability at all. The agent on the, on your power of attorney has no authority once you pass away. And the power of attorney only deals with non-trust assets or non-trust, uh, financial matters.
Your will only applies upon death. And again, only for non trust assets.
So there’s this distinction: trust handles life and death, but only for trust assets, power of attorney only during your life and only for non-trust assets, a will only upon your death and only for non-trust assets.
So taking together all three of these documents can work together. So let’s kind of flesh this out a little bit and, um, and, and provide some examples or some demonstrations of how this might work.
When you think of a trust, I often describe the trust or using analogy of a basket. Think of your trust as a basket and your assets as eggs. So of course, one of the key aspects to trust planning is to transfer the majority of your assets into your trust, or put the majority of your eggs into your basket. So that be your real property, your home vacation home, it would be bank accounts, checking, savings, your investment accounts. Um, most categories of assets go into the trust. Certain assets stay outside on purpose like retirement plans and annuities. Those should have beneficiary designations to avoid probate, but they’re not in your trust while you’re living.
Now, there could be additional assets that you forgot to put into your trust and you accidentally left outside. And that’s not something we typically want to have happen because that might cause a probate upon your death, but there’s still the possibility. So you’re going to have inevitably, you’re going to have this distinction between trust assets in non-trust assets, even when you do the estate planning perfectly because of the special categories of assets – retirement plans and annuities – that don’t belong in your trust while you’re living, you’re going to inevitably have trust assets and non-trust assets.
So with your trust, the trustee controls the trust assets. Now you might be the sole trustee at the start while you’re living and while you have mental capacity. And you might just name a successor trustee who will only come into play upon your incapacity or upon your death. And if the asset is in the trust, the trustee is going to have access and authority over that asset nce they’re acting. You might decide, you know, that you want someone to help you with your assets now. So you might name them as a co-trustee with you. Then they would have authority over your trust assets. But again, the authority is limited purely to the trust assets.
Your power of attorney is for things that are outside of the trust and only while you’re living. So if you become incapacitated and you have a retirement plan, that’s not titled to the trust. It’s actually the agent on your power of attorney that has authority over that asset and not the trustee. The trustee would have authority over your checking account, your savings account, your real property during your incapacity, but it’s your power of attorney agent that would have authority over your retirement account. It’s your power of attorney agent that would have the ability under the authority of the power of attorney to get your mail, to sign your personal tax returns, to deal with Medicare and social security, all those kinds of personal things, things that would not be governed by the trust.
Not that they’re not titled to the trust itself, and then upon your death, the power of attorney, uh, ceases to be applicable and the will would give authority to the executor over non-trust assets. And if you have too many assets out of the trust upon your death, then the problem is we might have a probate and it might be necessary to open a probate to take care of those assets under the authority of the will. If the amount of assets, if a number of assets is relatively small and in low in value cumulatively, you might not need a probate to handle. It just depends.
So, um, these three documents taken together, essentially do the same thing. And that’s why I think it makes sense that the same person you name as your trustee will also be your power of attorney agent and will also be your executor because you’re basically doing the same thing. A lot of times there’s confusion. And like I said, not only among clients, but even among attorneys as well. Uh, sometimes you might create a comprehensive estate plan. You might have a trust, a power of attorney and a will. And when you created the documents, you decided, I only want someone to have control over my assets only if I lose capacity or pass away. So you only name the trustee as a successor trustee, maybe you’re the current trustee alone. And you’re the only one that can act for the trust. And only if you lose capacity, do you have your trusted friend or family member or professional as a successor trustee for you.
And you might do the same thing with a power of attorney. You can have an immediate power of attorney, which gives the agent immediate control even if you still have capacity or you might have a springing power of attorney, which only gives your agent control over your non-trust assets in the event of your incapacity. And sometimes you might start by having a springing power of attorney and a trust that only has a successor trustee. And then you reach a point where even though you still have capacity, you would like to have that family member or that trusted friend or a professional help you write checks, help you manage your assets. And so sometimes clients only focus on the power of attorney and they go to the trouble of converting their power of attorney, doing a new one. Instead of having a springing power of attorney that only is effective upon incapacity, they make an immediate one forgetting that most of their assets are in the trust and forgetting that the power of attorney is going to have no authority over the trust at all.
So they go to the trouble. They asked for an immediate power of attorney. It gets drafted and gets signed. They go to the bank, they present it to the bank. Now I want my power of attorney agent to have access over my bank accounts. And the bank says, no, sorry, that’s not going to work because your bank accounts are titled to your trust. So what they need to do in addition to converting the power of attorney from springing to immediate, is they also need to do a simple amendment to the trust, to appoint that same person as an immediate co-trustee of the trust.
So that’s how the distinctions come into play. And it’s important to understand how they work. Working together, everything will be taken care of. What we have to ask ourselves if we’re one of the agents . . . And by the way, collectively, you know, the trustee on the trust, the agent on the power of attorney, the executor on the will collectively, the, these roles are all referred to as fiduciaries. A fiduciary is someone that has a level of trust and a level of responsibility. So working together, your fiduciary will have a control over your assets. They just have to ask their question, okay, are we doing with the, the owner, the asset? Are they still living or have they passed away? Is the asset in the trust or is it out of the trust? Right? If the owner is still living and the asset is in the trust, it’s the trustee that controls it. If the owner is still living in the asset is outside of the trust, it’s the power of attorney. If the owner is deceased and it’s inside the trust, it’s the trustee that controls it. If the owner is deceased and the asset is outside of the trust, it’s the executor that controls it.
So hopefully this gives you a pretty good overview of the difference between a trust, the power of attorney and a will and how the three different fiduciaries, the trustee, the agent executor all have their different, separate and distinct roles. And while it’s probably a good idea to have the same people in the same three roles, cause it’s essentially the same job.
I hope you enjoyed watching my video. As I mentioned at the beginning, this is not intended to be a substitute for proper legal counsel. Before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. Thank you.