What does a Living Trust and Guardianship have to do with each other?
The answer is that a living trust can help you avoid an unwanted guardianship proceeding. So, we can see that a living trust is not just about handling assets upon death, but also about managing them (and paying bills, etc) if one becomes disabled.
First, some background.
There are three ways your assets and financial affairs can be handled if you become incapacitated. They are:
I’ll start with the last option. If you do nothing; if you don’t formally authorize someone to handle your affairs if you become incapacitated, your family will have to go to probate court, and in a public legal proceeding, have you declared incompetent. The court will then appoint a guardian (or conservator) to manage your affairs.
This is often referred to as a Guardianship (or Conservatorship) Proceeding. It can be a time-consuming, difficult, stressful, and costly process.
It is especially tough on the family as there is inevitably much confusion and disagreement between family members.
Once you are incapacitated, it’s hard for anyone to know for sure what your true desires are or who you really want to serve as your guardian. It’s even harder to know how you’d like your affairs handled.
To make matters worse, no one can do anything with your property until the probate court has found you to be incompetent and appointed a guardian.
Doing nothing, and thereby effectively forcing a guardianship proceeding on yourself, is almost always the worst possible option. I would only recommend it if you simply do not have anyone you can trust to handle your affairs if you become incapacitated. In that case, you probably actually want probate court supervision.
In most cases, and hopefully your own, you can see that you really owe it to yourself, and even more to your family, to put your desires in writing. You need to give someone a document, granting them the power to handle your affairs, if you are unable to do so yourself.
The most common way to do this is to simply give a trusted friend or family member a durable power of attorney that takes effect upon your incapacitation. That works fine, usually.
But, if you’ve ever tried doing important things for someone with only their power of attorney, you know how difficult it can be. This is increasingly true as security precautions become ever more formidable in modern society.
Imagine if you had to go to a bank and tell them you needed access to someone else’s account and only had a power of attorney to saying you could. That could be a painful experience – for everyone.
So, giving someone a durable power of attorney is better than doing nothing. But, placing your assets in a living trust is really the gold standard for incapacity asset management.
Normally, the best thing to do is transfer your assets (called funding) to the living trust, with instructions on how they are to be managed if you become incapacitated. Normally you would be the trustee of the trust initially. But, you should name a successor trustee in case you become incapacitated.
Actually, in some cases (i.e. you really trust the person) you will be better off making him or her a co-trustee rather than a successor trustee. Why? That way your trustee won't have to prove you are disabled to act as trustee of the trust.
Your successor trustee will have very little trouble managing the assets in the living trust during your incapacity. After all, the assets are not in your name, they are in the name of the trust. And, he or she becomes the trustee if you become incapacitated or are otherwise unable to handle your affairs.
Even if you don’t fund the living trust, you still can have it set up, complete with your instructions, for how you want your assets managed if you become incapacitated.
Then, you can give a power of attorney to your successor trustee, allowing him or her to fund the trust, with your assets, upon your disability.
Once the trust is funded, your successor trustee, as trustee of the living trust, can handle your affairs for you with relative ease.
So, whether the trust is funded before or after disability, it is much easier for the trustee to manage your affairs if your assets are in a living trust, than if they are still in your name.
For most people, the living trust is the best option – when it comes to incapacity asset management -- because it allows for a relatively quick, easy, controlled, and dignified transfer of asset management if you become incapacitated.
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