If you’ve ever considered planning for your future or helped someone plan for theirs, you’ve probably heard the term “power of attorney.” But do you know what it is? The terms “power” and “attorney” carry weight but may not mean what you think. There are many misconceptions about what a power of attorney is and what authority it gives someone. And no, it doesn’t grant someone a temporary law degree. 

I’ll address the misconceptions about powers of attorney so you know what to do if someone appoints you as their power of attorney. Then, armed with this knowledge, you’ll understand your legal responsibilities so you don’t inadvertently make any mistakes or run afoul of the law.

Let’s start with some background info. If a power of attorney doesn’t confer attorney status, then why is it called that?

What is a Power of Attorney?

Generally speaking, a power of attorney is a legal document granting someone else the authority to act on your behalf regarding your financial life. The term “power of attorney” is a bit of a historical holdover. Originally, powers of attorney were primarily used to appoint lawyers to represent individuals in legal matters. However, the concept has expanded over time to include appointing someone to act on your behalf for various purposes.

So, while you don’t need to be an attorney to hold a power of attorney, the term has continued due to its historical origins. Granting power of attorney is a way to indicate that an appointed person has the authority to act as your agent or representative, similar to the way an attorney would act on your behalf.

There are times when it’s necessary to preserve your assets, especially if you reach a point in life when you are unable to manage your own financial, legal, or healthcare matters, whether from old age, a terrible accident, or simply being out of the country for an extended period. In each of these cases, it’s possible that if you don’t have someone acting on your behalf, problems could occur. Your financial institutions could charge extra fees on your accounts, a fraudster could drain them, and you wouldn’t know it happened; taxes could go unpaid, your property could go into foreclosure, or your credit could be ruined. So, to prevent these horrific outcomes, you want someone else to be able to maintain your financial life on your behalf.

Types of Powers of Attorney

We don’t need to get too much in the weeds here (if you want to get in the weeds, though, read to the end, and I’ll show you how to book a call with me); know that there are different types of powers of attorney, each with its specific purpose. Here are some examples:

General Power of Attorney: This grants the agent broad authority to act on your behalf, including managing your finances and signing legal documents, even if you can handle your affairs. It becomes effective as soon as you execute the document. When might you want this? Say you travel for work, and you and your spouse have decided to refinance your mortgage. You may want your spouse to sign the paperwork on your behalf rather than wait until you’re back in town.

Springing Power of Attorney: This also grants authority to someone to manage your financial and legal affairs. You can execute the document whenever you want, but it doesn’t kick in until you can no longer make your own decisions.

Durable Power of Attorney: This type of general power of attorney remains in effect even if you become incapacitated. Think of it as the General and Springing Powers of Attorney combined.

Limited Power of Attorney: This grants the agent authority to handle specific tasks only, such as managing your property or making healthcare decisions.

Healthcare Power of Attorney: This grants your named agent authority to make medical decisions on your behalf. 

Even though each of these documents operates differently, they all have one crucial thing in common: the agent’s power ends as soon as you die. 

What No One Told You About a Power of Attorney: It Ends With Death

You may mistakenly believe that a power of attorney gives someone the right to access your financial accounts indefinitely. However, a power of attorney is a temporary arrangement that ends when the person who granted the power dies. What does this mean, exactly?

Let’s say your aging mother can no longer manage her affairs, and she executed a Power of Attorney to give you the authority. While she’s living, you can access her bank accounts to ensure all her bills are paid and paid on time. But as soon as she dies, you no longer have the legal authority to access her accounts. If she had a Will or no estate plan, you would have to file paperwork with the probate court and wait for the case to make it through the court system until the judge grants you authority again. In the meantime, if you can’t afford to cover her bills along with your own, you may have to decide to let her bills go unpaid. If she still has a mortgage on her house, for instance, and you can’t pay her mortgage and yours, the bank could begin to foreclose, and you could lose any equity she had. This equity could have been a significant part of your inheritance. 

Going to court can be frustrating and time-consuming, and negative consequences can result if you haven’t planned appropriately. 

The Good News

With some careful planning ahead of time, you can ensure all your bills get paid, and your assets are preserved for your loved ones. The way to do that is by creating a Life & Legacy Plan with a living trust. A trust is a legal arrangement that allows you to transfer your assets to a trustee, who manages them to benefit your beneficiaries. Notably, a trust survives your death, so there’s no disruption in the ability of someone to manage your finances after you die.

You owe it to yourself and your loved ones to ensure your power of attorney, trust, and related estate planning tools are created correctly and updated over time and that you understand the benefits and consequences of your plan. 

How We Help You Preserve What Matters

Understanding the limitations of a power of attorney and the benefits of a trust is crucial for protecting your hard-earned assets. When you work with me to create a Life & Legacy Plan, I’ll empower you with the education you need so you can make the right choices for yourself and your family, that you fully understand how your plan works, and that your family has my support after you’re gone. Once your plan is in place, you can rest easy knowing that your wishes will be honored, your loved ones cared for, and your property protected.

Schedule a complimentary 15-minute consultation to learn more and start your journey toward a secure financial future. Contact us today!

This article is a service of Res Nova Law, a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Life & Legacy Planning™ Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life & Legacy Planning™ Session.

The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

When Matthew Perry, the beloved star of Friends, passed away last year, the world mourned the loss of a comedic icon. However, as details of his estate began to emerge, a curious puzzle presented itself: despite his reported net worth of $120 million, his bank account held (only) $1.5 million. Admittedly, this seems like a whopping sum to most of us, but this amount appears off for a man who earned millions of dollars for just one episode of the show. Shouldn’t he have had much more money than that? The answer lies in the details of estate planning and using trusts as part of your plan.

In this article, we’ll look at Perry’s estate plan and pull out some valuable lessons. These lessons pertain to all of us, not just the rich and famous. To find out how trusts can benefit you, read on.

What is a Trust?

A trust is simply a legal arrangement where a person (sometimes called a “settlor”) transfers assets to someone ( a “trustee”) who manages those assets for the benefit of someone else (the “beneficiaries”). Many types of trusts can be used for various purposes, including estate planning, asset protection, and providing for loved ones.

The trustees appointed to manage a trust play a crucial role in fulfilling the settlor’s wishes. Choosing the right trustees is essential for the effective management of a trust. Trustees should be trustworthy, financially responsible, and knowledgeable about estate planning. They should also be willing to devote the time and effort required to manage the trust’s assets.

In Perry’s case, it appears he established a trust during his lifetime. This trust, which seems to be named the Alvy Singer Living Trust—Woody Allen’s character in Annie Hall—presumably holds a significant portion of his wealth. In Perry’s case, the trustees were likely responsible for managing his investments, paying bills, and distributing money to the beneficiaries.

Why would Perry have chosen to establish a trust? There are many benefits, which I’ll break down in greater detail now.

The Power and Benefits of Trusts

There are many advantages to using a trust for estate planning. Here are some of the most common.

Protection from creditors and lawsuits. If a beneficiary faced financial difficulties, their creditors would generally not have access to assets held in a trust.

Ongoing support during life, incapacity, and after death. Trusts can provide for loved ones more flexibly than a will. A will is a legal document that outlines how your assets will be distributed after your death. However, a trust can be structured to provide support during your life and for your beneficiaries over time, ensuring their needs are met. If you have a will, your assets will usually be transferred to your beneficiaries – even if they are young or financially irresponsible.

Minimization of estate taxes. Depending on the size of an estate, there may be significant federal and state estate taxes. A trust can reduce or eliminate these taxes.

Court avoidance. A court process called probate takes place after someone dies, and it can be expensive, lengthy, and conflict-laden. If you have a will or no estate plan, court is mandatory. However, the court process may be avoided if you have a trust. This results in less expense, less time, and a decreased probability of conflict. It’s also a public proceeding, and court filings contain personal and financial information you may not want others to see.

Conflict avoidance. The court process is set up to give all heirs and creditors a claim to your assets. They are invited to file a claim and get to see information about your assets.

Greater control over what happens to your assets and your family. When you have to go to court, someone other than you – a judge who’s a stranger to you and your family – will make all final decisions about your money, property, and family. But with a trust, you can make those decisions and exercise control over the outcomes.

Preserving assets when there’s a substance abuse issue. It’s no secret that Perry struggled with substance abuse for much of his life, and it’s possible that because of that, he was advised to create a trust to hold his assets. This was a wise decision. Substance abuse can have a significant impact on financial stability, and it is possible that Perry sought to protect his assets from loss, either by his actions or potential creditors and legal issues related to his addiction. You can do the same for a friend or relative if you want to support them and know they struggle to manage their finances responsibly.

These advantages apply to you, too! You do not need to be wealthy to want a trust. You do not have to be charitable or famous to take advantage of the benefits.

The Appeal of Privacy

Remember when I mentioned above that the court process is public? I also noted that a trust can help you and your family avoid court and its very public nature. If you were wondering, “If it’s true Matthew Perry had a trust, then how come it’s public knowledge that he had $1.5 million in his bank account?” Then kudos! You caught on to something important.

Matthew Perry also had a will, and wills go through probate. Any assets not placed into a trust must be dealt with via your will and, thus, are subject to the court process. Remember when I mentioned that court filings must contain your personal and financial information? That’s how we know about Matthew Perry’s bank account. The funds in his bank account were ostensibly not placed into his trust and are subject to the public probate process. You can look up the court records and read his will – or any will – for yourself.

His will mentioned that he had trust, which is also common. It doesn’t mention the terms of the trust, who the beneficiaries are, what his other assets are, and who gets what. Our public knowledge is limited to what’s in his will. And if his bank account had been placed into his trust, it would have been kept private, too.

In short, assets placed into a trust are kept private, as is your personal and financial information. Assets left out of a trust are public knowledge. So, when you create a trust, you mustn’t just draft and sign the document and call it a day. You must take the next step and correctly place your assets into the trust. If you don’t do that, you lose all the benefits the trust offers.

How We Help You Protect What Matters Most

As more details about Perry’s estate emerge (and sadly, his death), we may better understand his intentions and the legacy he will leave behind. While his untimely passing is a tragic loss, his estate planning offers a fascinating look at the advantages of trusts and how you can also take advantage of them.

We help you create a comprehensive Life & Legacy Plan that may include tools like trusts to protect your assets, maintain your privacy, and ensure your loved ones are cared for—without the headaches of court or the increased chances of conflict. By planning today, you can have peace of mind knowing your wishes will be honored, your family’s future will be safeguarded, and your legacy will be kept private.

Schedule a complimentary 15-minute consultation to learn more. Contact us today!

This article is a service of Res Nova Law, a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Life & Legacy Planning™ Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life & Legacy Planning™ Session.

The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.