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What is a Power of Appointment Trust?

Making decisions around end-of-life matters can involve learning a lot about the legal process of distributing your assets. There can be a lot of vocabulary and many concepts to familiarize yourself with. Here we’re going to demystify the Power of Appointment Trust and the 2 types of Power of Appointment that can go along with it.

What is a Power of Appointment Trust?

This is a trust fund, or legal entity that holds property or financial assets, that your Power of Appointment beneficiaries will be dispersing. Basically, you legally create a group of assets that only properly appointed representatives can make decisions regarding. This means that where your assets are allocated is still fluid at your passing. Money can be kept in the fund and dispersed as needed over time, by those given Power of Appointment.

What are the advantages of Trust Funds over simply willing your assets to beneficiaries?

If you choose to will your assets directly to your beneficiaries, then the control of assets set aside for minors goes to their guardians. With a trust, you may choose to have children wait until they’re adults to receive your assets. This can protect from the poor money management of parents or allow assets to continue maturing in an interest-bearing account. With a trust, you can also choose to have your assets disbursed slowly over time instead of all at once. The way that you accomplish this delayed disbursement in by having a trust fund manager with Power of Appointment.

There are two types of powers of appointment: a Limited Power of Appointment and a General Power of Appointment.

Limited Power of Appointment

A Limited Power of Appointment gives the ability to decide who will receive entrusted property, within limits. The holder of a Limited Power of Appointment can transfer property to anyone other than themselves. The holder cannot transfer the property to their creditors, or their own estate. This makes it easy for an adult to transfer assets to children once they’re legally adult, or for a trusted friend to select charities for donation.

General Power of Appointment

A General Power of Appointment is a much broader power. It allows the beneficiary to allocate all or part of their share of the trust to any individuals or organizations they choose. This most often goes to the deceased’s closest human connection, like their spouse, or child. This is a perfect fit when you want all assets to be overseen by the selected person.

For guidance or the best estate planning choices for you, contact Lewman Law today.

Filed under Legal Services

Estate Planning: Writing Your Own Will

When it comes to planning for your own passing, many people think of writing their own wills. Writing important documents for yourself, like your wedding vows, or your memoirs, holds a romantic appeal. You may want to convey your wishes in your own voice, and leave a message for the loved ones you leave here.

The days of leaving a note so that your oldest son knows how to handle your affairs is long past. A goodbye document with directions for family is no longer the function of a will. You can still create a letter of wisdom and direction to be read at your funeral, but today’s will is much more a part of the legal system than of a conversation with loved ones.

Writing Your Own Will or Living Trust

If you still want to go ahead and write your own will, then we should start with understand what it is and why. You may be best served by a Last Will and Testament or a Living Trust, depending on circumstances. If you’re not sure which one is right, consult an estate planning attorney.

What is a Will?

A will, or “last will and testament”, is a document that lets you legally designate the people or charities that will receive your possessions and property after your passing. These people and charitable organizations are referred to as beneficiaries. This is also where you name a guardian for any children under 18. The purpose of a will is to ensure that your wishes, instead of default laws of the state you live in, are followed after your passing. WIth a will, your estate will have an executor appointed and go through the probate process.

What is a Living Trust?

A living trust is a more efficient way to distribute your assets. This allows you to skip the time and expense of probate court proceedings, and it doesn’t require an executor. A living trust requires more work than a will, including transferring your assets into the name of the trust after its creation, but offers more control to you than a will. Having an estate lawyer guide you through the living trust process is highly recommended.

Creating Your Will

There are specific pieces of information your will must include. Although you don’t have to follow this recipe exactly, this format is a good one to start with:

First Paragraph

Use this paragraph to identify yourself and what this document is. Include your full name, date of birth, social security number, address. State your age or that you are over the legal age of adulthood, currently 18, and that you are of sound mind. It’s also beneficial to mention that you are not under duress or being forced in any way in the creation of this document. Identify the document as your Last Will and Testament. You can mention that all previous will or codicil is void, although that is accepted as default. Be sure to write the date on the document.

Second Paragraph

Name an executor, and an alternative executor. In the case that the first person named cannot or chooses not to serve as executor, the alternative will be important. The executor is the person who will be in charge of carrying out the directives of your will. This can include paying off your debts, distributing your belongings, etc. Do not name anyone that you haven’t discussed this with in advance. They should be a responsible person you trust to do the right thing when needed.

Third Paragraph

Identify your beneficiaries. These are the people or charities inheriting possessions or property from you. Be sure to leave no ambiguity, use people’s full names, birthdays, and other identifying information if you can. Although you can designate whoever you want to inherit from you, in many states spouses have legal protection from being disinherited. Consult an estate attorney to navigate providing for your spouse in a way that differs from the state laws where you live.

Final Section

This is more a section than a paragraph because it can easily take the form of a chart or bullet list. Here you want to document your assets, including real estate, bank accounts, retirement accounts, stocks, bonds and tangible assets. Anything that already has a designated beneficiary or joint owner doesn’t need to be accounted for here.

Assign each person or charity a percentage of your total estate, or specify who should receive what assets. Be careful not to use dollar amounts that can change. Instead of saying the amount in an account, just name the account specifically, as it may have a different balance in the future. Clarity is important.

Final Steps

Take the document you’ve created, put it somewhere safe, and do not read it for a week.  After a week has passed, reread the will and be sure it all makes sense, is complete, and you still agree to all your previous decisions before taking it to be notarized. Of course this step isn’t legally required, but it’s a very good idea.

We recommend you have your will notarized. Sign in front of the notary and however many witnesses your state requires at a minimum. In California it’s required that 2 disinterested witnesses sign the will, and notarization is optional. But it’s still a good idea.

Some things to keep in mind when authoring your own will:

-In California the signing of your will must be witnessed by at least two disinterested witnesses. Disinterested means not named in the will, or otherwise potentially able to benefit from your inheritance. Have them sign your will as witnesses.

-Entirely handwritten wills can still be legal, although if you write your will out by hand, it’s recommended that you make multiple copies.

-Having your will saved as an editable document makes future changes and updates much easier. You can save documents in password protected files, and without your signature these saved files are not legally binding.

It’s our recommendation that an estate attorney always be consulted about after-death plans, whether you want help creating those plans or need your plans reviewed by a professional after writing your own will.

Filed under Estate Planning Tips