Why should I make a trust? This is a common question. In this series of posts, here’s twenty great reasons to have a trust!
Part A: Planning for Incapacity.
Dementia, Alzheimers, Coma, etc.
1. A trust avoids the probate court.
If you become incapacitated without having a trust, you may need to have a conservator appointed by the court, which is basically a legal guardian for an adult. This court appointed conservator will be in charge of your assets, investments, debts, basically all of your financial matters.
With a trust, your own selected trustee will be in charge of your financial matters if you become incapacitated. This person can take over without need of any court process. This saves money, maintains privacy, and is a far less stressful ordeal for the incapacitated person than an expensive, public court proceeding. If you also have a power of attorney for healthcare (such as an “advance healthcare directive”), you won’t need a conservator for your personal care either.
2. A trust can define the existence of incapacity.
Your trust could provide, for example, that you are deemed to be incapacitated if your regular primary physician confirms in writing that you are no longer able to manage your affairs; or you can require more than one doctor’s opinion; or you can leave it to the vote of a committee of your loved ones and medical providers.
If incapacity is properly defined, with a specific means of determining its existence, then no court involvement will be needed. Proving incapacity in a court is expensive, time consuming, and very public. You could be required to undergo exhaustive mental testing and evaluation. Your “laundry” will be aired in public. It’s a very intrusive process. With a properly structured trust, you won’t have to go through any of that.
3. A trust is more flexible than a power of attorney.
Most third parties (banks, brokerages, title companies, etc.) are quite stingy when it comes to honoring a power of attorney. This is primarily out of fear of liability if the Agent fails to carry out his duties or acts in excess of his authority. You can define incapacity in a power of attorney, but many third parties will probably resist and insist upon a judge’s determination before they will honor it. Trusts do not carry the same stigma with third parties and the law is far more developed for trusts. This means third parties are much more comfortable dealing with trusts and your interests are better protected with a trust.
The amount of detail you can include is also much greater with a trust. Your trust can be as long and detailed as you wish, with as many instructions for your trustee as you desire to give, including how and when to provide support for others, what assets to sell and what to keep, where to make charity gifts, etc. The longer a power of attorney is, the more likely it will be rejected by a third party.
4. A trust can be used to manage your assets if you are missing.
A power of attorney ceases to be effective the moment you die. If you are missing, the power of attorney may not be honored because it cannot be known whether you are alive or dead. Your Will does not take effect until you are certainly dead. Without a trust, your loved ones may have to wait seven years before they can petition for probate and a court determination that you are presumed dead. If you have a trust, your successor trustee can immediately step in to manage the trust assets in your absence, pay your bills, use your property to support your loved ones, and so on. A power of attorney isn’t effective if you’re dead; a Will isn’t effective if you’re alive; a trust is effective all of the time.