Appointment of Co-Trustee vs. Power of Attorney

Most people automatically think that a “power of attorney” is the appropriate device for granting signature power yet that is not always true – especially when you have a living trust. In fact, a power of attorney is generally useless in granting signature power on trust assets where instead you need to use something called an “appointment of co-trustee”. Many choose a combination strategy by executing an “appointment of co-trustee” to grant signature power on trust assets and a “power of attorney” which effectively fills in the gaps that the trust doesn’t cover. Learn more about this right here.

An Appointment of Co-Trustee Is The Only Effective Document For Authorizing Others To Sign On Trust Assets

Appointing someone as a co-trustee is the only proper way to grant signature power for assets titled in the name of your trust. (A power of attorney will not work to grant signature power for assets titled in your trust.) A power of attorney will only function on assets outside of the trust (and generally you don’t want assets to exist outside your trust except qualified retirement plans and life insurance).Thus, no institution is going to properly allow anyone else to sign on trust assets unless you elevate that person to the status of a present acting trustee (meaning that if you have a child or other person on an account as a present signer they will not be allowed to stay on the account when you title it in your trust unless you appoint them as a present acting co-trustee).

A Reminder: Management of your trust assets is already addressed should you become incapacitated.

Remember, one of the advantages of a trust is that it provides for management of your trust assets in the event that you become incapacitated. That is, with a note from two licensed physicians (stating your incapacity) your designated successor trustee will be able to step in, be given signature power, and manage the trust assets during your incapacity. For many clients, knowing that their successor trustees will be given signature power on assets should they become incapacitated, eliminates any perceived need for granting present signature power on trust assets. Others however still want to authorize signature power – especially those in declining health or whose children for instance are actively assisting in their finances or paying bills. That of course is an individual choice.

Signature Power through Trusteeship Is Accompanied by A High Fiduciary Duty

It is worth noting that one of the many advantages of working through the trust is that anyone granted this signature power through trusteeship is automatically bound by law to the highest fiduciary duty to you and your future beneficiaries the highest degree of honesty, fair dealing, and accountability (and would be held liable by any court for misuse, mismanagement, or misappropriation of any assets). The same cannot be said for a power of attorney. Also worth noting is that a power of attorney ceases to be valid immediately upon death whereas signature power through a trust survives death. All in all, where possible, signature power through a trust is generally superior in every way. The only problem, as discussed below, is that a trust cannot cover all of your affairs.

A Trust Doesn’t Cover All of Your Affairs However

While it is true that your trust allows your successor trustee to step in and manage trust assets in the event of your incapacity, it is important to remember that this only covers trust assets. This still leaves a certain gap in your affairs. For example, you cannot title IRA’s and other Qualified Retirement Plans in a trust, and without a power of attorney, a well spouse would be unable to access an incapacitated spouse’s retirement accounts. Furthermore, other matters can pop up that are unrelated to your trust like tax returns, tax elections, and employee benefits to name but a few. And it isn’t always about incapacity either — you could be out of the country, in an emergency, or in some other situation that renders you unavailable. Many, choose to address these gaps by executing a Power of Attorney.

Broad Based vs. Limited Powers and Immediately Vesting vs. Springing Powers

When granting signature power it is possible to make it very broad based (sign on anything) or limited (sign on just some things). For example, with a living trust you can appoint someone as a full co-trustee (allowing them to sign on any trust asset) or as a limited co-trustee (only granting them the power to sign on certain trust assets). Likewise a broad based power of attorney allows your agent to sign for anything (except trust assets) while a limited power of attorney only allows your agent to sign or act on certain matters. Likewise, signature power can be immediately vesting or on the other hand it can require certain events such as incapacity to occur for signature power to vest (springing powers).

We Make An Immediately Vesting, Broad Based Power of Attorney Available Because That Is What Most Want

Truth is, there are an unending variety of powers of attorney. You could literally spend hours and hours of attorney time discussing your options and the pros and cons of each. That however, is something that would take us way beyond the intended scope of our service and that of most living trust processes. We find that most people have a sufficient comfort level of trust in someone and want their agent to be able to act in most matters without first having to go to court or obtain letters from two licensed physicians. That is why as a matter of practicality we choose to offer or make available a broad-based, immediately vesting power of attorney that presently grants your agent broad powers to act on your behalf.

Again, the advantages of an immediately vesting, broad based power of attorney are 1) they cover most acts and 2) unlike springing powers of attorney, there is no need to legally establish incapacity before your agent is allowed to act.

Most Seem To Have Someone They Trust

Most spouses seem to trust each other enough and most single folks are also comfortable granting someone this power. As a middle ground, some elect to execute the Power of Attorney but keep it private to their own papers and there if the need arises. Remember too, that your trust provides it own level of protection against potential abuse because a power of attorney cannot be used on the trust or trust assets. Ultimately, the choice is yours, but if you are at all uncomfortable or feel a need to explore this issue further, then do not sign this power of attorney. Otherwise you are welcome to use the one we provide.

We Provide Both An Appointment of Full Co-Trustee Form and An Appointment of Limited Co-Trustee Form: (One is for married couples and another for singles)

If you wish to grant someone signature power on all trust assets or accounts utilize the form entitled “Appointment of Full Co-Trustee” (wherein you detail the person authorized to sign on any trust asset). If you wish to grant someone signature power on only limited trust assets or selected accounts you may utilize the form entitled “Appointment of Limited Co-Trustee” (wherein you detail and list the person and the accounts/assets that you are authorizing their signature on).

A Final Word To Choose Wisely

Regardless of any legal protection you may have, whenever you grant someone signature power, it is worth remembering that you are still essentially handing him or her the “keys to the safe”. Fiduciary duty or not, if they misappropriate the money, it still has to be recovered. If a wrongly acting person has fled the country or spent all the money, there may be a certain difficulty in collecting. Also, effectively revoking a power of attorney or appointment of co-trustee is more involved than just signing a revocation (learn more). A word to the wise — choose carefully!