Incapacity Planning and the Revocable Living Trust

The revocable living trust, sometimes called a living trust, has many attractive qualities that make it a powerful estate planning tool. One of these attributes is the ability to offer you incapacity protection over the assets that are placed into your trust during your lifetime. Incapacity planning is planning that is done so that if you fall under an illness or other disability where you can no longer manage your financial affairs or make your own health care decisions, you have a plan in place. Typically, this type of planning includes executing a general power of attorney and a health care power of attorney, and although it is important for you to have these documents as well, the revocable living trust can sometimes offer a little more. Why? Because the trust owns the assets.

Why Ownership Matters

When you retitle assets into the name of your revocable trust, for tax purposes, you are still considered the owner of the assets, even upon your incapacity. However, outside of the lens of the IRS, the assets are deemed to be owned by the trust and managed by the trustee (which is you). If you fall under an incapacity, your successor trustee can immediately start managing those trust assets for your benefit.

A general power of attorney also offers these incapacity protections by allowing your named agent to manage your assets on your behalf. However, this agent is not the owner of the asset, just a person who is granted the ability to manage the asset through your general power of attorney and is limited by the powers specifically provided for in said general power of attorney. Because the agent does not own the asset, sometimes third parties, like banks, restrict the agent or require the agent to jump through more hoops because of these limitations. Your trustee, however, is considered the owner of the asset and therefore, these same third parties are less likely to throw up road blocks in the management of the asset.

A trust alone is not enough.

Unfortunately, not all assets can be placed into a revocable living trust during your lifetime, like retirement accounts. Revocable living trusts also do not grant your successor trustee with certain powers that a general power of attorney can provide and they do not allow your trustee to make health care decisions on your behalf. Therefore, you always need your powers of attorney in addition to your revocable living trust for full incapacity protection.

What happens if you do not have these incapcacity planning documents in place? Your loved ones will likely have to pursue a conservatorship over you, which requires court, attorneys fees, and lack of control over who is appointed to manage your financial affairs.

Discover More Benefits with Select Law Partners, PLLC

Incacpatiy protection is one of many benefits a revocable living trust can offer you and your family. They are also just one estate planning tool that is available for you to consider. Speak to one of the attorneys at Select Law Partners, PLLC to customize your estate plan today. The first step is to contact Select Law Partners, PLLC, and schedule a consultation.

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Sara Josey

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