I was involved in a consultation with a potential new Living Trust client the other day which has prompted me to write this article. I will quote a few of his comments which demonstrates the client confusion.
He said, “Mom has appointed me Conservator and I am already Executor of her Trust. I want to appoint my daughter as my Executor so she gets all my property. She can also be Conservator of my Power of Attorney.” Does this sound right? No, but it does give us some idea of the confusion that exists in the realm of different fiduciaries acting within the authority of certain documents. Here is another quote from a different client in consultation. “I can’t appoint my son as my Attorney-infact because he is not a lawyer.” Okay, what we are going to do here is present this article in a simplified manner so that if you read it a couple of times, you will know and understand more than 90% of your peers.
Who are the fiduciaries appointed in each document?
Family / Living Trust – The Trustee represents the Trust and Successor Trustees are designated to follow the initial Trustee. The Trustor, also known as Settlor or Creator, creates the Family / Living Trust and is normally the initial Trustee. That is why you sign the Family / Living Trust as a Trustor and a Trustee. The Trustor owns the Family / Living Trust assets and the Trustee manages the Family / Living Trust assets. In California, an individual may be the Trustor, Trustee and the beneficiary of the Family / Living Trust. You are the beneficiary of your Family / Living Trust during your lifetime. If you lose capacity or upon your death, your Successor Trustee becomes the Trustee. There are no Executors, Agents, Attorney-in-facts or Conservators designated in Family / Living Trusts.
Pour Over Will – Why is it given this crazy designation? Because any asset that you own at death which is not titled in the name of the Family/Living Trust is mandated to be distributed to the Trustee, thus, “poured into the Trust.” The exception are investments that already have designated beneficiaries, i.e., IRAs, life insurance, annuities, etc. There are usually no distribution provisions in the Pour Over Will as it connects with the Family/Living Trust which provides the distribution to specific beneficiaries on your demise. Who is the fiduciary in the Pour Over Will? The Executor. What does the Executor do? Not much if you have a Family/Living Trust. They take care of any assets not titled in the Trust and the personal property. Usually, the same person is designated the Successor Trustee and the Executor.
Okay, we are halfway there. To summarize: Family / Living Trust designates the Trustee and Successor Trustees to handle and manage all Family / Living Trust assets.
Pour Over Will designates the Executor to handle non-Trust assets at your death.
Durable Power of Attorney – In California, we have the Uniform Durable Power of Attorney (UDPA) for financial purposes and the Advanced Health Care Directive (AHCD) for health purposes. Each designates an Agent, also known as an “Attorney-in-fact.” Attorney means Agent, thus, an Agent-in-fact. You do not have to be a lawyer to be an Attorney-in-fact. What do they do? Agents in the financial UDPA handle your non-Trust assets should you become incapacitated. Assets such as your IRAs, 401(k)s, life insurance, annuities, etc. What about assets in your Family/Living Trust? NO!!! Your Agents have no authority over them. Why? Because your Successor Trustee handles Trust assets should you become incapacitated. So listen Agents designated in the UDPA. If mom or pop becomes incapacitated don’t go running down to the bank with your UDPA if the bank accounts are titled in the Trust. The bank will shoo you away. Why? Because the UDPA has no authority over Family/Living Trust assets. That is within the province of the Successor Trustee.
Now, listen up because this is important. What if the person who created the UDPA, known as the Principal, dies? Does the Agent under the UDPA have any further authority? No. The UDPA terminates with the death of the Principal. But what about the non-Trust assets, who handles them now? The Executor designated in the Pour Over Will because the Will now becomes effective and the UDPA ineffective. Basically, the Agent hands the non-Trust asset baton to the Executor.
How about the Agents designated in the AHCD? Are they involved in finances? No! They carry out health care wishes once the Principal is incapacitated. Each Principal should have completed the attachment to their AHCD in which they have made selections for care involving 12 medical procedures in 4 different states of mind. The Agent is bound to see that they are carried out by the medical providers. If no such Attachment is present the Agent has the burden of making those very personal and, sometimes, terminal decisions. There are times when some agents will not make these decisions which only extends the dying process and disallows natural death to end the suffering.
Thus, I highly recommend you complete the Attachment and designate the right Agents in your AHCD. The AHCD does not terminate at the Principal’s death as it provides post-death authority (organ donation, burial or cremation instructions, etc.).
Okay, ready to summarize:
Family / Living Trust – Provides for a Trustee or Successor Trustee to handle Trust assets during life and after the death of the Trustor.
Pour Over Will – Designates the Executor to handle non-Trust assets after death of owner.
UDPA (Financial) – Designates an Agent (Attorney-in-fact) to manage non-Trust assets if the Principal is incapacitated until death of the Principal.
AHCD (Health) – Designates Agent to carry out health wishes or decisions including post-death authority.
Hey, that’s it. I think you’ve got it. No more confusion right? What? What are you asking? Conservator? You really don’t want to go there. When I say “there,” I mean Court because that is where Conservators come from – they are Court appointed. If you have your Trust and Durable Powers of Attorney all nice and tidy, your family will normally not have to arrange a Conservatorship.