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Tuesday, September 26, 2006

Make sure your trust is coordinated with your durable power of attorney authorization

Something which should be considered when you have an attorney prepare a living trust is to ensure that the trust is coordinated with any durable power of attorney which you may have prepared on your behalf.

A durable power of attorney allows you to designate an agent to act on your behalf. For example, you might want to make sure that you have an agent authorized to manage your financial affairs if you are unable to do so. It is "durable" because your agent may act even if you are under a disability -- even disabilities such as (heaven forbid) Alzheimer's and dementia, or even a coma. A durable power of attorney is not to be confused with a power of attorney authorizing health care decisions, which is an entirely different subject. A durable power relates to financial and property-related matters.

Of course, living trusts also relate to financial and property-related issues. Thus, durable powers of attorney and trusts often overlap in many ways.

However defects or changed circumstances sometimes arise after the trust's settlor (i.e., the person(s) creating the trust) is incapable of amending the trust agreement. In anticipation of such cases, a settlor might want to consider giving his or her agent (also called an "attorney in fact") the right to amend or even revoke a living trust.

In California it is necessary for the trust agreement to specifically state that the attorney-in-fact has the authority to amend or revoke the trust. California Probate Code section 15401(c) requires that the trust document grant this authority.

While there are many considerations involved in deciding whether to ultimately permit your agent to retain this type of authority, make sure that your trust document reflects your wishes. Personally, I prefer the trust document to permit this authority. But if my client wishes to limit the scope of his or her agent (or even to deny the agent the power to amend and/or revoke the trust), I generally address the issue through the durable power of attorney authorization. In my view, this is the most flexible approach which also prevents unnecessary trust amendment in the event the client changes his or her mind, or if circumstances change.

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