What is the Difference between a Living Trust and Durable Power of Attorney?

Understanding the difference between a revocable living trust and durable power of attorney is essential for effective estate planning. Attorney Kellen Bryant explains the key differences, how each works, when you need one or both, and the cost considerations for each option.

Definitions: Living Trust vs. Durable Power of Attorney

What Is a Revocable Living Trust?

A trust is a legal document that creates an agreement between the creator of the trust (grantor) and the trustee. This legal agreement controls how the trustee manages the creator’s money, assets, and property.

Key characteristics of living trusts:

• Property management tool for assets
• Functions during the creator’s lifetime
• Continues to operate upon incapacity
• Manages asset distribution after death
• Only controls assets specifically placed in the trust

What Is a Durable Power of Attorney?

A durable power of attorney is a legal instrument where one person gives power to another person to handle financial matters if the creator becomes incapacitated.

Key characteristics of power of attorney:

• Grants broad financial authority
• Activates only during incapacity (unless otherwise specified)
• Controls any assets not held in trust
• Handles day-to-day financial tasks
• Terminates at death

How Each Document Works

When Do These Documents Take Control?

Both a trust and durable power of attorney can control assets when the creator/owner becomes incapacitated. Incapacity can result from:

• Mental incapacity (dementia, Alzheimer’s, severe cognitive decline)
• Physical incapacity (coma, stroke, severe illness)
• Temporary incapacity (surgery, hospitalization)
• Being bedridden in a nursing home requiring extensive care

How Living Trusts Control Assets

The trustee controls assets only held in the trust:

• Assets must be specifically transferred into the trust
• Bank statements and asset titles show the trust name
• Trustee manages only trust-owned assets
• Assets outside the trust are not controlled by the trustee

Example: If your house and investment accounts are in the trust, the trustee can manage those. But if you have a checking account not in the trust, the trustee cannot access it.

How Durable Power of Attorney Controls Assets

The attorney-in-fact can manage any assets not held in trust:

• Controls assets in your individual name
• Handles broader financial responsibilities
• Manages day-to-day financial tasks
• Covers areas trusts cannot address

Powers beyond asset management:

• Dealing with mail and correspondence
• Paying bills and expenses
• Filing tax returns
• Managing insurance matters
• Handling government benefits

When You Need One, the Other, or Both

Who Should Have a Durable Power of Attorney?

Everyone should have a durable power of attorney, especially if you have someone you trust with your finances. Here’s why:

• Controls anything when you’re incapacitated
• Essential backup for financial management
• Handles matters trusts cannot address
• Relatively inexpensive to create
• Provides comprehensive financial authority

When Might You Want a Trust?

A trust might be helpful when you have:

• A lot of assets to manage
• Tricky or complex assets to handle
• High-value asset portfolios
• Desire to avoid probate
• Complex family situations
• Privacy concerns about asset distribution

The trust controls the large portion of your finances, while assets not in the trust are managed by your power of attorney.

Why You Might Want Both

Many people benefit from having both documents because:

• Trust controls major assets (investments, real estate)
• Power of attorney handles everything else
• Comprehensive coverage of all financial matters
• Backup protection if assets aren’t in trust
• Different tools for different purposes

What’s not covered by trust: Since trusts only control assets specifically placed in them, you need a power of attorney for other financial tasks and any assets outside the trust.

Cost Differences: Power of Attorney vs. Living Trust

Durable Power of Attorney: The Cheaper Option

Durable power of attorney is much cheaper to draft because:

• Simpler document structure
• Primarily delegates existing powers
• Controls current financial matters
• Less complex legal drafting required
• Fewer variables and scenarios to address

Living Trust: The More Expensive Option

Creating a trust is more expensive because:

• Many different rules and steps involved
• Multiple scenarios must be addressed
• Functions beyond just incapacity planning
• Complex creation, control, and decision-making provisions
• Ongoing management and distribution rules
• Tax and legal considerations

Additional trust considerations: Trusts are much more difficult to create than durable power of attorney because they involve complex legal structures for various life situations, not just incapacity.

Key Differences Summary

Choosing the Right Option for Your Situation

Start with Power of Attorney

For most people starting estate planning:

• Begin with a durable power of attorney
• Provides essential incapacity protection
• Covers comprehensive financial management
• Cost-effective foundational document

Add a Trust When Appropriate

Consider adding a trust when you have:

• Significant assets to manage
• Desire to avoid probate
• Complex family or financial situations
• Privacy concerns
• Long-term asset management needs

Professional Guidance for Estate Planning

Choosing between a living trust and durable power of attorney—or deciding to use both—depends on your specific situation, assets, and goals. Professional guidance ensures you select the right combination of tools for your needs.

Contact the Berg Bryant Elder Law Group in Jacksonville, Florida today to discuss which estate planning documents are right for your situation and get the protection you need for incapacity and beyond.