Common
Questions
(1) Completing a Living Trust & Pricing
(2) Titling Assets in Your Trust
(3) Changes In Marital Status
(4) Amendments, Reviews, & Changes
(5) Why & When To Review & Update
A Trust
(6) Why You May No Longer Need
or Want An AB or ABC Trust
(7) Important Issues When Someone
Dies or is Dying
(8) Real Estate Issues
(9) Medical Directives
(10) Granting / Obtaining Signature
Power
(11) Trust Copies & Originals
(12) Incapacity Issues
(13) Confidentiality Issues & Policies
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Incapacity & Granting or Obtaining Signature Power on Assets
The general idea behind a living trust is to provide for uninterrupted
proper management of your assets. If you become incapacitated that
means management of the trust assets (paying bills, etc.) for your
benefit during your incapacity. If you die, this means winding up
your affairs and transitioning your assets to your named beneficiaries.
Signature Power through Trusteeship Is Accompanied by High Fiduciary
Duty
In essence you are granting signature power to your named successor
trustee – a power that is generally triggered only by your death
or incapacity. When someone gains signature power on assets through
being a trustee, that person is automatically bound by law to the
highest fiduciary duty requiring them to properly manage and use
the assets. The trustee therefore owes you and your future beneficiaries
the highest degree of honesty and fair dealing. Thus, the trustee
is accountable to the beneficiaries and would be held liable by any
court for misuse, mismanagement, or misappropriation of any assets.
Therefore, a high degree of legal protection accompanies granting
signature power through trusteeship. That said, if a wrong acting
trustee has fled to Brazil or spent all the money, there may be a
certain difficulty in collecting – which is why you should still
choose your trustees and successor trustees carefully. Point is,
there is always some degree of risk associated with granting anyone
signature power. The idea is to minimize it.
A Reminder: Management of your trust assets is already addressed
should you become incapacitated.
One of the advantages of a trust is that it provides for management
of your trust assets in the event that you become incapacitated.
That is, with a note from two licensed physicians (stating your incapacity)
your designated successor trustee (owing you the highest fiduciary
duty) will be able to step in, be given signature power, and manage
the trust assets during your incapacity. This avoids the need for
seeking a conservatorship for managing those assets (a costly, time
consuming, bureaucratic process). To obtain signature power on trust
assets the successor trustee should present to each institution or
appropriate designee:
- Notes from 2 licensed physicians with unequivocal statements
of incapacity (or a court order establishing incapacity though
this is usually much more difficult and expensive).
- A copy of the incapacity clause (usually located somewhere under
the major article heading and section entitled “Office of Trustee”,
typically the 6th to 8th paragraph under that section.)
- A copy of the page in the trust naming the nominated successor
trustee.
For many clients, knowing that their successor trustees will be
given signature power on assets if they become incapacitated eliminates
any perceived need to risk granting present signature status on trust
assets to anyone else.
Granting Present Signature Power on Some or All Assets
Nonetheless some clients wish to grant another individual (typically
a child) present signature power either on some selected assets
(accounts) or maybe even on all assets. This is often true for
clients who find themselves in a declining state of health or ability
-- and who need the help of others in maintaining their financial
affairs and paying bills. Still other clients just wish to grant
someone the present ability to sign (typically to a child) just
because they want to (as an emergency measure or what not). The
reasons are without end but the end goal is the same: to elevate
someone to sign on assets right here and now even while you are
alive and technically able to do it yourself.
Potential Dangers of Granting Someone Present Signature Power
Before laying out the means to this end it is important to discuss
the potential dangers of giving someone signature power. Many people
are trustworthy but unfortunately some are not. We have all heard
a story of someone being wiped out or stolen from by a child (or
someone else) they granted signature power to. It happens all the
time. Be very aware of this danger – it could happen to you. When
you grant someone signature power, no matter how much legal protection
you have, you are still handing them the “keys to the safe”. Fiduciary
duty or not, if they misappropriate the money, it still has to
be recovered.
Signature Power through Present Co-Trusteeship vs. Power of Attorney
Two general (but not exhaustive) methods for granting signature power
to someone will be discussed. One method is through appointing
someone as a present acting co-trustee, the other method is through
granting someone a power of attorney. Appointing someone as co-trustee
is the only proper way to give signature power to someone for assets
titled in the name of your trust. Thus it is important to remember
that a power of attorney will not work to grant signature power
for assets titled in your trust. A power of attorney will only
function on assets outside of the trust (and generally you don’t
want assets to exist outside your trust except qualified retirement
plans). At present your paperwork reflects only you as the trustee
of your trust – and because of that, no institution is going to
properly allow anyone else to sign -- unless you elevate that person
to the status of a present acting trustee. Repeated: If you have
a child or other person on an account as a present signer they
will not be allowed to stay on the account when you title it in
your trust unless you appoint them as a present acting co-trustee.
Appointing Someone As a Co-Trustee
Your choices in giving someone signature power by appointing them
as a present acting co-trustee is to 1) elevate them to the level
of a present acting co-trustee on selected accounts only (appointment
of limited co-trustee) or 2) elevate them to the level of present
acting co-trustee on all accounts and trust assets (appointment
of full co-trustee). Remember, if you presently have a child who
can sign on an account, in order to allow them to stay on as a
signature you will need to appoint them as a present acting co-trustee
(limited or full). For your convenience we supply several forms
which you can utilize towards these ends. Because the law automatically
binds any trustee with the highest fiduciary duty, granting present
signature power though appointment of co-trustee provides more
protection than a power of attorney. Yet it is important to emphasize
that even with appointment of a co-trustee, you should still be
prudent and cautious whom you grant signature power to – in that
you are still handing them the “keys to the safe.”
Appointment of Limited Co-Trustee Form
Appointing someone only on selected accounts is sometimes perceived
as a middle ground approach because you limit the “signature power
risk” to one or a few selected accounts only (vs. granting power
on all trust assets). If you wish to grant someone signature power
on only limited trust assets or selected accounts you may utilize
the form entitled “Appointment of Limited Co-Trustee” (wherein
you detail and list the person and the accounts/assets that you
are authorizing their signature on). This form (along with others
related to this topic) can be found under “Granting / Obtaining
Signature Power”.
Appointment of Full Co-Trustee Form
If you wish to grant someone signature power on all trust assets
or accounts utilize the form entitled “Appointment of Full Co-Trustee”
(wherein you detail the person authorized to sign on any trust
asset). This form (along with others related to this topic) can
be found under “Granting / Obtaining Signature Power”.
Signature Power through Power of Attorney
As an alternative, some folks turn to utilizing financial durable
powers of attorney to address potential incapacity and management
of assets on your behalf. A financial durable power of attorney
generally grants someone broad power to act on your behalf as an
individual (file tax returns, buy and sell assets, sign on accounts
and other assets, etc.). The danger with powers of attorney are
that the person you grant the financial durable power of attorney
owes little or no fiduciary duty to you or others. You are simply
granting them the power to act in your stead. If there is misuse,
misrepresentation or misappropriation of the assets there is little
recourse available in that it is just as if you did the act yourself.
It is for this reason that we do not automatically draw up financial
powers of attorney during your trust process. (We do however provide
a form, broad based power of attorney, if you wish to utilize it
– discussed below). This form (along with others related to this
topic) can be found under “Granting / Obtaining Signature Power”.
Why Would You Need a Power of Attorney if You Have A Trust?
Again it is important to emphasize that a power of attorney grants
signature power only on assets that you own as an individual. A
financial durable power of attorney does not and will not grant
the power for someone to sign or act on assets titled in your trust
(or allow them to modify your trust in any way). Given the fact
that your goal is to title most all of your assets in the name
of your trust you might ask if there is any need for a power of
attorney. The first answer to this question can be found in the
fact that there are certain assets that cannot be titled in your
trust – mainly Qualified Retirement Plans such as IRA’s, 401k’s,
PERS, etc. If you have large amounts tied up in such plans (or
other assets you may leave outside the trust) you may want to consider
a contingency plan for getting at those assets in case you become
incapacitated. (We have seen situations wherein a well spouse is
unable to access the incapacitated spouse’s retirement accounts.)
There is also the possibility you may wish to allow other actions
on your behalf such as filing tax returns, etc.
Fact is, there are an unending variety of powers of attorney (i.e.
“springing” which only become effective on incapacity, “limited”
to specific acts., etc.). Whole books are devoted to the subject.
– which is why hours and hours could be spent on the topic alone.
If you want to properly address this subject you should seek competent
legal advise from a qualified attorney who can help you carefully
tailor a document to your specific needs, objectives, and situation
(we do not counsel on this subject).
For your convenience however, we provide you with two types of financial
power of attorney 1) a broad based power of attorney and 2) a more
limited power of attorney.
Broad Based Financial Durable Power of Attorney Form
This broad based power of attorney pretty much grants whomever you
appoint the power to sign and act in your stead on anything and
everything – no restrictions (although they cannot modify your
trust or act on trust assets). Some clients are perfectly comfortable
granting such broad powers to certain individuals (spouses, children,
confidants, etc.). Having this completed form would certainly allow
for access to your non-trust assets (incapacitated or not) and
does amount to a strategy for dealing with such assets as IRA’s,
401k’s etc.. If correctly filled out, the provided broad based
power of attorney form should work at allowing access by your appointed
individuals to these accounts as well as allowing them to act in
your stead on any matter. A strategy some clients use is to just
complete and execute the form and leave it with their important
papers where it can be found and used if needed (instead of handing
it to the person right now). Give careful consideration before
granting anyone such sweeping powers. This form (along with others
related to this topic) can be found under “Granting
/ Obtaining Signature Power”.
Limited Power of Attorney Form
If properly completed, this form allows the appointed person to make
a transfer of assets you own as an individual to your living trust.
This should, for example, allow a withdrawal from a Qualified Retirement
Plan account (IRA, PERS, 401k, 403b, etc.) as long as it is to
be put in an account in the living trust. This helps solve the
problem of access to the one major asset (for many) that can’t
be put in the trust. Since the money goes directly to the trust
your trustee is legally bound by the fiduciary duty to only use
the assets for your benefit. This form (along with others related
to this topic) can be found under “Granting
/ Obtaining Signature Power”. |
