One of the most misunderstood topics of estate planning is what documents control a situation. I often have people calling asking for a power of attorney, when they truly need to update how an asset is titled, or someone calls asking for a will when they really need to update a trust. So, hopefully this month I can clarify what documents actually control a situation. It all really depends on who legally owns the asset.
Titling always controls first. If there are two people on the asset, then they have access to that asset. Both signatures might be required, but often times (unless dealing with real estate or vehicles) one person may act without the other.
Often times, I have someone ask me about a power of attorney, but they actually mean another person is on their bank account or asset with them. In that situation, the solution involves changing how the bank account is titled, not changing the power of attorney.
A power of attorney is when someone has an asset in their name, but a second person uses the document to access the first person’s asset. The power of attorney may only be used when the person is still alive. The most common time a power of attorney is used is when an individual is no longer able to make decisions and another needs access to his/her retirement accounts to provide for him/her.
However, if the asset is titled in the name of the trust (not in the name of the original owner), the trust controls. If the original creator of the trust is not able to make decisions any longer the successor trustee takes over. The successor trustee will have access to make decisions on the asset. A power of attorney cannot apply in this situation because the person is not the owner the trust is.
When we start talking about when people pass, there are generally a few different ways for the property to be controlled. First, again is who is titled on the asset. If there is more than one name on the asset, the remaining name may be entitled to the asset alone. It depends on exactly how the asset is titled. Generally, if the asset is owned by (and titled to) a married couple, the asset will automatically pass to the other. If the owners are not married, it must state the asset is owned by joint tenants with right of survivorship for the asset to pass automatically to the other.
The title might again be in the name of the trust, and again, if that is the case, the trust document controls. The successor trustee would take control of the assets and distribute or hold them as the trust document dictates.
If the asset does not have another person on the title as a current owner or is not in a trust, a beneficiary designation will control. This might be a beneficiary deed on the house, a “TOD” or Transfer on Death on a vehicle, or a “POD” on a bank account, but if there is any form of a beneficiary listed, that beneficiary gets the asset.
It is only when there is no trust, other person, or beneficiary listed on the title that the asset would go through probate. At that point, if there is a will the will would control, and if there is no will intestate law would apply.
While it can be confusing, the first step is always looking at the title. A trustee will always control if it’s owned by a trust, a joint owner may be control, and only after that a power of attorney, beneficiary, or will.