King & Wood, P.A.

IRS Changes Rule on Inheritance Taxes

“The agency has curbed the tax break on a particular kind of trust that is often used to minimize capital gains taxes.”

The IRS has changed the rules regarding taxes on inheritances, curbing the tax break on a particular kind of trust often used to minimize estate taxes. According to the article “IRS quietly changes rule on how your children’s inheritance is taxed” from The Daily Mail, the agency has clarified how irrevocable trusts are taxed.

Before Revenue Ruling 2023-2, it was unclear what the tax policies were around assets passing to beneficiaries through an irrevocable trust. However, the ruling has confirmed that these trusts will now be subject to capital gains tax, significantly impacting estate planning.

Assets distributed during a person’s lifetime are typically subject to capital gains taxes on the increase in value of the asset over time. The tax is determined largely by the difference between how much the asset was worth when it was purchased and the value at the time it was transferred.

The exception to this rule has been when assets are passed to beneficiaries at the time of an individual’s death. The owner's death gives the recipients a “step-up in basis,” so they inherit the asset as if it had been purchased at the current value rather than when it was purchased. This eliminates any capital gains taxes.

Before the new ruling, transfers from irrevocable trusts generally received this tax break. The ruling now states that any property held in an irrevocable trust not included in the taxable estate at death will no longer receive a step-up basis.

This new rule must be considered to avoid substantial costs to heirs.

Let’s say a couple purchased a home in 1975 for $100,000, and the home is now worth $250,000. If they want to sell the home, the couple will owe capital gains on the $150,000 increase in value. Before the ruling, if they transferred their home into an irrevocable trust, the trust could sell the home from a cost basis of $250,000, and there would be no capital gains due if the proceeds were distributed to their children.

The ruling doesn’t mean trusts are no longer useful. However, planning needs to be more careful, with the help of an experienced estate planning attorney.

It is now critical to be sure any trust included in the taxable estate at death uses correct wording, so the value of the assets is included in the taxable estate.

Most families will not yet find themselves subject to federal estate tax, even if the value of their home is included because the current federal estate tax exemption is $12.92 per individual. However, in 2026 the estate tax limit will be lowered to about half that amount.

Seek advice from an experienced estate planning attorney to protect heirs from this important change from the IRS.

Reference: Daily Mail (July 5, 2023) “IRS quietly changes rule on how your children’s inheritance is taxed”

Which Is the Best to Way to Transfer Wealth, Trusts or Wills?

“Take the squabbling between siblings you've had to endure and referee as a parent. Now multiply it times age and money. That might give you some idea of the need to make your final wishes clear when the time comes to divvy up your assets.”

Even when everyone in the family grows up and gets along, settling an estate can bring back old sibling battles. It is even more likely if there are large sums of money or valuable property at stake. This makes having a well-prepared estate plan necessary and making those plans clear to family members long before they are needed.

A recent article from The Motley Fool, “Living Trust vs. Will: Which Is The Best Way to Pass Inheritance to Your Family?” explores how best to prepare for the future.

A will, also known as a last will and testament, instructs the executor of your estate how to distribute assets to heirs after your death.

A trust allows you to transfer assets at any time—including while you are still living—however you want, whenever you want. A trustee is the person named in the trust who is responsible for administering the trust. You can protect your children from mismanaging their inheritance with a good trustee and a properly prepared trust.

One of the biggest differences between a will and a trust is that the will takes effect only after you die.It also usually requires review and approval by a probate court. A trust is funded while you are living and does not go through the probate process.

Many people use both a will and a trust for their estate plans.

The will is best created by an experienced estate planning attorney who knows the estate and tax laws of your state. Wills are also used to name your executor and appoint a guardian for minor children. If your children are young, you want this in your will. Remember that when wills go through probate, they become part of the public record. As a result, anyone who wants to can read your will.

Trusts fall into two main categories—revocable and irrevocable. The difference is as it sounds; the grantor can change the revocable trust after it's created. Irrevocable trusts can’t be changed once established, although some states permit what is known as “decanting”—pouring the contents from one trust into another. Your estate planning attorney will know if your state permits this.

One benefit of a trust is privacy. The trust doesn’t go through probate, so no one but the trustee and, depending on the trust, the beneficiaries, know what is in it. Assets in the trust are also distributed as directed in the trust, so they go directly to beneficiaries. There is no court involvement.

In addition, when assets are placed in the trust, they are owned by the trust and not the person who created the trust (the grantor).

Whether you are beginning to plan your estate or updating an existing plan, your estate planning attorney will help you understand your options, so you can create a plan best suited for you and your family.

Reference: The Motley Fool (July 7, 2023) “Living Trust vs. Will: Which Is The Best Way to Pass Inheritance to Your Family?”

How Do You Split Property Among Heirs?

“If you thought that doing your taxes got complicated when you acquired more assets, wait until you try to split them up among multiple children when planning their inheritance.”

Deciding how to divide assets among heirs is one of the most challenging aspects of estate planning, especially when the estate includes complex holdings like real estate, family businesses and investments not easily divided, according to a recent article from GO Banking Rates, “I’m a Financial Advisor: Here’s How to Equally Divide an Inheritance Among Heirs.” Navigating this process is something you want to get right the first time to prevent heirs from becoming embroiled in family fights and, worse, litigation.

The first decision is whether the goal is equal or equitable distribution. Equality means that everyone gets the same inheritance, regardless of their situation. Equity is a bit more challenging, since everyone inherits what they need to succeed, and chances are that each of their needs are different.

Considering the needs and individual circumstances could be a more suitable way to help your heirs.

Consider one adult child who enjoys good health, and owns a business and a mortgage-free house, while their sibling cannot work and depends on government benefits. An equal solution would split the inheritance equally, but in an equitable distribution, the child who can’t work would receive more financial support and a Special Needs Trust to protect their benefits.

Trusts are the preferred method of estate planners because they bypass probate, offer tax advantages and protect assets from creditors. They also allow grantors to ensure distribution as desired. Trusts can be revocable or irrevocable, living or testamentary, and can be designed to include custom rules to suit any situation.

However, there are two asset classes presenting challenges to distributing equitably, even with a trust.

Distribution of complex holdings like real estate property and family-owned businesses requires considerably more planning than simply splitting a bank account. Consideration needs to be given to the dynamics of beneficiaries and what potential issues may arise.

In the case of a family business, the challenge is deciding whether or not to liquidate the property and distribute the proceeds or determining how to establish ownership among the siblings.

If one or more heirs want to continue to own the business and others do not, a buy-sell agreement will be needed so they can buy the other’s shares at a predetermined price, thereby ensuring all receive fair compensation. A professional appraisal will be critical to establishing the current market value, ensuring fair distributions.

Another way to resolve this is to create a Family Limited Partnership (FLP) to maintain control within the family, while distributing profits equitably.

What if heirs want vastly different outcomes, and you’d like to simplify matters? One answer is to have crystal-clear language in your will stating if beneficiaries can’t reach an agreement on what should happen to the business, it will be liquidated and the proceeds divided.

An experienced estate planning attorney will help determine the best way to achieve your goals based on your family’s situation and your wishes.

Reference: GO Banking Rates (June 8, 2023) “I’m a Financial Advisor: Here’s How to Equally Divide an Inheritance Among Heirs”

How Does a Spousal Lifetime Access Trust Work?

“Different people have different needs, and for most people, starting with basic legal documents, such as a will and power of attorney, are a great place to start and can make a big difference.”

Making plans for the events of the future not only saves your family time and money but will also provide peace of mind to you and your beneficiaries, advises the article “Learn about options for estate planning and wealth transfer” from The Tennessean. One of the tools used in estate planning is the Spousal Lifetime Access Trust (SLAT), an especially useful trust now that lifetime exemptions are set to decrease at the end of 2025.

No federal estate taxes are owed for individuals with assets up to $12.92 million and married couples with $25.84 million in 2023. However, federal estate taxes are owed at a maximum rate of 40% for any wealth above these amounts.

This is of particular interest right now. The Tax Cut and Jobs Act of 2017 (TCJA) doubled the federal gift and estate tax exemption per spouse, allowing a married couple to exempt up to $25.84 million and individuals $12.92 million. However, this exemption amount will expire on December 31, 2025, decreasing by about half.

It’s a “use it or lose it” proposition right now, so taxpayers who want to take advantage of these historically high exemption levels should consider taking action before the expiration date. One way to do that is with a Spousal Lifetime Access Trust.

A SLAT is an irrevocable trust where one spouse gifts assets to the other beneficiary spouse. The beneficiary spouse may receive distributions during their lifetime, while the SLAT is removed from the gross estate and isn’t subject to estate taxes upon the beneficiary’s death. It’s a valuable estate planning tool, as it permits taxpayers to gift assets while retaining limited access to the funds through their spouse.

If a person gifts assets to an irrevocable trust, they can’t take the assets back or change the terms of the trust.  Therefore, they’ve given up control over the asset. However, a SLAT provides indirect access through the spouse, who may receive income and principal distributions from the trust during their lifetime.

A SLAT needs to be properly drafted by an experienced estate planning attorney, and they do come with some risks. For example, if the beneficiary spouse passes away suddenly, the spouse may lose access to their SLAT payouts. If the couple divorces, the spouse may lose access to assets, unless the trust includes a provision stating that the trust benefits current and future spouses, which allows indirect access to be regained after remarrying. In addition, assets held in a SLAT don’t receive a step-up in cost basis upon the donor spouse’s death. This might lead to increased capital gains tax liability for remainder beneficiaries.

There are a number of intricacies to consider when exploring the use of a SLAT as part of your estate plan. To ensure that the SLAT is appropriate, consult an experienced estate planning attorney.

Reference: The Tennessean (May 7, 2023) “Learn about options for estate planning and wealth transfer”

Protecting Assets with a Trust vs. Limited Liability Company

“To protect assets effectively, you have to store them in the right legal entity. However, that can depend on whether you’re looking to protect business assets, avoid estate taxes, or protect personal assets from legal liability while running a business.”

While trusts and Limited Liability Companies (LLCs) are very different legal vehicles, they are both used by business owners to protect assets. Understanding their differences, strengths and weaknesses will help determine which is best for your situation, as explained by the article “Trust Vs. LLC 2023: What Is The Difference?” from Business Report.

A trust is a fiduciary agreement placing assets under the control of a third-party trustee to manage assets, so they may be managed and passed to beneficiaries. Trusts are commonly used when transferring family assets to avoid probate.

A family home could be placed in a trust to avoid estate taxes on the owner’s death, if the goal is to pass the home on to the children. The trustee manages the home as an asset until the transfer takes place.

There are several different types of trusts:

A revocable trust is controlled by the grantor, the person setting up the trust, as long as they are mentally competent. This flexibility allows the grantor to hold ownership interest, including real estate, in a separate vehicle without committing to the trust permanently.

The grantor cannot change an irrevocable trust, nor can the grantor be a trustee. Once the assets are placed in the irrevocable trust, the terms of the trust may not be changed, with extremely limited exceptions.

A testamentary trust is created after probate under the provisions of a last will and testament to protect business assets, rental property and other personal and business assets. Nevertheless, it only becomes active when the trust’s creator dies.

There are several roles in trusts. The grantor or settlor is the person who creates the trust. The trustee is the person who manages the assets in the trust and is in charge of any distribution. A successor trustee is a backup to the original trustee who manages assets, if the original trustee dies or becomes incapacitated. Finally, the beneficiaries are the people who receive assets when the terms of the trust are satisfied.

An LLC is a business entity commonly used for personal asset protection and business purposes. A multi-or single-member LLC could be created to own your home or business, to separate your personal property and business property, reduce potential legal liability and achieve a simplified management structure with liability protection.

The most significant advantage of a trust is avoiding the time-consuming process of probate, so beneficiaries may receive their inheritance faster. Assets in a trust may also prevent or reduce estate taxes. Trusts also keep your assets and filing documents private. Unlike a will, which becomes part of the public record and is available for anyone who asks, trust documents remain private.

LLCs and trusts are created on the state level. While LLCs are business entities designed for actively run businesses, trusts are essentially pass-through entities for inheritances and to pass dividends directly to beneficiaries while retaining control.

Your estate planning attorney will be able to judge whether you need a trust or an LLC. If you own a small business, it may already be an LLC. However, there are likely other asset protection vehicles your estate planning attorney can discuss with you.

Reference: Business Report (April 14, 2023) “Trust Vs. LLC 2023: What Is The Difference?”

Revocable Trusts Must Be Funded to Make Estate Plan Work

“The primary benefits of revocable trusts only are available if a revocable trust is FUNDED during life. Unfortunately, experienced estate planning attorneys often have clients who delay the funding of their revocable trusts until it is too late and miss many of the benefits that these trusts provide.”

Revocable assets simplify asset management during life and facilitate private asset transfers at death. Therefore, you might think your estate planning is done when you sign the revocable trust agreement. Nevertheless, it’s not done until you fund the trust, advises a recent article, “’It Ain’t Over ‘Til It’s Over’ – Use of a Funded Revocable Trust in Estate Planning” from The National Law Review.

A trust is a legal agreement allowing one person—the trustee—to hold and manage property to benefit one or more beneficiaries. The person who creates the trust—the grantor—can create a trust during their lifetime and modify or terminate the agreement at any time. The grantor is the initial trustee and the initial beneficiary. These dual roles allow the grantor to control the trust assets during their lifetime.

Upon death, the revocable trust becomes irrevocable. The trust agreement directs the distribution of assets and appoints the trustee to manage and distribute assets. Unlike a will, the revocable trust works during your lifetime to hold assets.

Funding the trust is critical for it to perform. Assets must be transferred, with an asset-by-asset review conducted to determine which assets should go into the trust. The assets should then be transferred—usually by title or deed changes—which your estate planning attorney can help with.

A funded revocable trust avoids having the assets go through probate. State statutes and regulations require several steps to be completed, adding time, effort and cost to estate administration. Suppose that the revocable trust at death owns the assets. In that case, the trust owns the legal title to the assets, and assets can be distributed to beneficiaries without court intervention.

Avoiding probate also reduces expenses. The expense of probate administration arises from two sources: probate fees and attorney fees. These vary by state and jurisdiction. However, they can add up quickly. A funded revocable trust minimizes both types of fees.

Unlike the will, which becomes a public document once it goes through probate, revocable trust assets and beneficiaries remain confidential, known only to the trustee and beneficiaries. Anyone who wants to can request and review your will and obtain information about assets and beneficiaries. However, the trust is a private document, protecting your loved ones from scammers, overly aggressive salespeople, and nosy relatives.

Privacy can be essential for business owners. For example, suppose you die owning a business interest as an individual. In that case, the description and value of business interests must be reported on the public record during the probate process and is available to potential purchasers to use as leverage against your estate. Transferring business interests to a revocable trust during your lifetime can keep that information private.

Trusts are also used for asset protection for assets with beneficiary designations, including life insurance, IRAs and retirement plans. For instance, if a life insurance policy is paid to your estate, creditors of your estate may have access to the proceeds. If it is paid to the trust, it is protected from creditors.

Reference: The National Law Review (March 3, 2023) “’It Ain’t Over ‘Til It’s Over’ – Use of a Funded Revocable Trust in Estate Planning”

Planning for Long-Term Care and Taxes

“Many families discover that trying to mitigate the cost of long-term care can conflict with another common retirement concern—reducing taxes for retirees and their heirs.”

Retirement brings about several risks including longevity, market risk and inflation, paired with two of the most common concerns of later life: the costs of long-term care and how to reduce or avoid taxes during retirement and upon transferring assets to heirs. These concerns are addressed in a recent article from Kiplinger, “Long-Term Care Planning vs. Taxes: Finding a Healthy Balance.”

Long-term Care Insurance (LTC) is recommended for individuals and families under age 65 with investable assets ranging from $1.5 million to $3 million. The limits on net worth and age are based on striking a balance between the coverage cost and what benefits would be received. The initial goal of LTC insurance to finance the cost of assisted living and skilled medical care has now become more of a hedge against the final bill for LTC than total coverage of expenses.

With the chance of needing to live in an elder care facility and the average stay of three or more years, plus the cost of skilled care, this is now a major reason for people declaring bankruptcy during retirement. LTC insurance was sold as protection, but as life expectancies with medical conditions have increased, so has the cost of care. As a result, premiums have skyrocketed, and benefits have been reduced.

Universal Life Insurance with Accelerated Benefit Riders is an option better suited for people up to age 70 with $3 million to $5 million in investable assets. The premiums are high, but the policies act as a multi-use tool, providing coverage and the opportunity for wealth leveraging for the next generation.

Accelerated Benefit Riders (ABRs) are a special kind of life insurance rider triggered by medical conditions allowing the death benefit of the policy to be advanced to the owner during their lifetime, often up to 100% of the policy’s face value, for funding an extended stay in an assisted living or skilled care facility.

Asset Protection Trust Planning is the focus for most Americans with a net worth of less than $2 million. This is where the pressure of the costs for skilled nursing care is felt more intensely. Those with fewer assets have more to lose and need protection more than the wealthy.

Self-settled wholly discretionary grantor trusts, which are irrevocable, are used to house certain assets Medicaid would expect families to liquidate or spend before approving benefits to cover the bulk of the cost. Certain provisions of irrevocable trusts can be changed depending on the state of residence, such as who the trustee is and who the beneficiaries are.

The trustee should not be one of the grantors of the trust, and there is a five-year look-back on the trust’s funding. For example, if a grantor needs long-term care five years after assets were moved into the trust’s name, other assets will be needed to pay for the care.

Families are encouraged to plan early—ideally, just before or in the early years of retirement. The needs of the family drive which assets are placed in the trust. However, not everything goes. For instance, placing IRAs or other qualified accounts into an irrevocable trust would be unwise because this would be a fully taxable event. Roth IRAs may be placed in a trust. However, then they would lose their Roth status.

Careful planning with an experienced estate planning attorney can establish a balance between maximizing protection and minimizing taxes.

Reference: Kiplinger (March 20, 2023) “Long-Term Care Planning vs. Taxes: Finding a Healthy Balance”

Planning for Long-Term Care with Irrevocable Trusts

“With the possibility of needing long-term care in the future, many people are interested in proactive planning.”

One of the best strategies to plan for long-term care involves using an irrevocable trust. However, the word “irrevocable” makes people a little wary. It shouldn’t. The use of the Intentionally Defective Grantor Trust, a type of irrevocable trust, provides both protection and flexibility, explains the article “Despite the name, irrevocable trusts provide flexibility” from The News-Enterprise.

Trusts are created by an estate planning attorney for each individual and their circumstances. Therefore, the provisions in one kind of trust may not be appropriate for another person, even when the situation appears to be the same on the surface. The flexibility provisions explored here are commonly used in Intentionally Defective Grantor Trusts, referred to as IDGTs.

Can the grantor change beneficiaries in an IDGT? The grantor, the person setting up the trust, can reserve a testamentary power of appointment, a special right allowing grantors to change after-death beneficiaries.

This power can also hold the trust assets in the grantors’ taxable estate, allowing for the stepped-up tax basis on appreciated property.

Depending on how the trust is created, the grantor may only have the right to change beneficiaries for a portion or all of the property. If the grantor wants to change beneficiaries, they must make that change in their will.

Can money or property from the trust be removed if needed later? IDGT trusts should always include both lifetime beneficiaries and after-death beneficiaries. After death, beneficiaries receive a share of assets upon the grantor’s death when the estate is distributed. Lifetime beneficiaries have the right to receive property during the grantor’s lifetime.

While grantors may retain the right to receive income from the trust, lifetime beneficiaries can receive the principal. This is particularly important if the trust includes a liquid account that needs to be gifted to the beneficiary to assist a parent.

The most important aspect? The lifetime beneficiary may receive the property and not the grantor. The beneficiary can then use the gifted property to help a parent.

An often-asked question of estate planning attorneys concerns what would happen if tax laws changed in the future. It’s a reasonable question.

If an irrevocable trust needs a technical change, the trust must go before a court to determine if the change can be made. However, most estate planning attorneys include a trust protector clause within the trust to maintain privacy and expediency.

A trust protector is a third party who is neither related nor subordinate to the grantor, serves as a fiduciary, and can sign off on necessary changes. Trust protectors serve as “fixers” and are used to ensure that the trust can operate as the grantors intended. They are not frequently used, but they offer flexibility for legislative changes.

Irrevocable trusts are an excellent way to protect assets when drafted with both protection and flexibility in mind.

Reference: The News-Enterprise (March 18, 2023) “Despite the name, irrevocable trusts provide flexibility”

How Trusts Help with Asset Protection

“The idea of asset protection for the purposes of protecting against long-term care costs is becoming both more sought-after and more necessary.”

As the number of people aged 65 plus continues to increase, more seniors realize they must address the cost of long-term health care, which can quickly devour assets intended for retirement or inheritances. Those who can prepare in advance do well to consider asset protection trusts, says the article “Asset protection is major concern of aging population” from The News Enterprise.

Asset protection trusts are irrevocable trusts in which another person manages the trust property and the person who created the trust—the grantor—is not entitled to the principal within the trust. There are several different types of irrevocable trusts used to protect assets. Still, one of the more frequently used irrevocable trusts for the purpose of protecting the grantor’s assets is the Intentionally Defective Grantor Trust, called IDGT for short.

As a side note, Revocable Living Trusts are completely different from Irrevocable Trusts and do not provide asset protection to grantors. Grantors placing their property into Revocable Living Trusts maintain the full right to control the property and use it for their own benefit, meaning any assets in the trust are not protected during the grantor’s lifetime.

IDGTs are irrevocable, and grantors have no right to principal and may not serve as a trustee, further limiting the grantors’ access to the property in the trust. Grantors may, however, receive any income from trust-owned property, such as rental properties or investment accounts.

During the grantor’s lifetime, any trust income is taxed at the grantor’s tax bracket rather than at the much higher trust tax bracket. Upon the grantor’s death, beneficiaries receive appreciated property at a stepped-up tax basis, avoiding a hefty capital gains tax.

While the term “irrevocable” makes some people nervous, most IDGTs have built-in flexibility and protections for grantors. One provision commonly included is a Testamentary Power of Appointment, which allows the grantor to change beneficiary designations.

IDGTs also include clauses providing for the grantors’ exclusive right to reside in the primary residence. However, if the grantor needs to change residences, the trustee may buy and sell property within the trust as needed.

IDGTs provide for two different types of beneficiaries: lifetime and after-death beneficiaries. Lifetime beneficiaries are those who will receive shares of the total estate upon the death of the grantor. Lifetime beneficiary provisions are important because they allow the grantor to make gifts from the trust principal. Hence, there is always at least one person who can receive the trust principal if need be.

Asset protection trusts are complicated and require the help of an experienced estate planning attorney. However, when used properly, they can offer protection from unanticipated creditors, long-term care costs and even unintended tax liabilities.

Reference: The News Enterprise (March 4, 2023) “Asset protection is major concern of aging population”

What Documents are in an Estate Plan?

“There are frequently asked questions that people have about revocable living trusts, wills, supported decision making agreements (new), powers of attorney and advance health care directives.”

Understanding how estate planning documents work is central to creating an estate plan for each individual’s unique situation. An estate planning attorney needs to know the details of your life, not because they’re nosy. It is because this is how they can create a plan tailored to protect you during your lifetime, plan for long-term care and distribute assets upon your death. A recent article, “Understanding estate planning documents” from Lake Country Record-Bee, explains in broad strokes what each estate plan needs to include.

The will nominates an executor to administer the decedent’s estate, including the distribution of specific gifts and other assets. Depending on your state of residence, the will must be witnessed by one or two people who have no interest in the outcome of your will. At death, the distribution of assets only applies to those in the estate and not to those who receive property transferred under a trust, through a designation of death beneficiary form or a joint tenancy title.

A trust controls and manages assets placed in the trust during life and after death. Assets held in a living trust are used to avoid conservatorships, should become incapacitated during life. Assets in trusts do not go through probate.

Assets transferred into a living trust must belong to the person to establishes the trust, known as the settlor. A married couple may establish a joint trust to receive community property, if they live in a community property state. Each spouse may choose to transfer his or her own separate property assets into a joint trust, or keep their separate property assets in separate trusts.

Trust assets are titled for ownership and control to the trustee. The trustee is a fiduciary, meaning they are the legal representative of the trust and administer the provisions of the trust as directed in the trust documents.

You should always have a successor trustee for a trust, who takes office when the last initial trustee resigns, becomes incapacitated, or dies. How and when the transfer to the successor trustee takes place is included in the trust documents. Some trusts include a specific method to fill a trustee vacancy, if no nominated successor trustee accepts the role.

Living trusts can be changed by the settlor. The incapacity or death of the settler makes a living trust an irrevocable trust. A joint trust, however, sometimes allows either settlor acting alone to amend the living trust. Your estate planning attorney will help you determine whether a joint trust makes sense for your family.

Powers of attorney (POA) allows a person (the principal) to authorize another person (the agent) to act as a representative over some or all of the principal’s own legal and financial affairs. The POA does not have any power over a trust; the trustee is in charge of the trust. A POA can be effective on signing or effective upon incapacity of the principal. POA forms do not always reflect specific individual wishes, so it’s best to have one created by an estate planning attorney.

The Advance Health Care Directive (AHCD) delegates authority to an agent to make decisions and act on the principal’s needs in health care. The AHCD must be created and be in place before incapacity occurs. An incapacitated person cannot sign legal documents.

Reference: Lake County Record-Bee (Feb. 18, 2023) “Understanding estate planning documents”