What is the difference between a power of attorney a will and a trust?

While this could sound like the start of a joke, there is often a lot of confusion about these documents — and that is not funny at all! So here’s a reminder of what everything is and what terms get tossed around in estate planning:

What is a power of attorney?

A power of attorney gives someone else the right to make decisions on your behalf. You can have an immediate power of attorney, which allows someone to go make decisions on your behalf right now. You can also have a springing power of attorney that kicks in only once you are declared incapacitated.

There is a financial power of attorney (also called a property power of attorney or durable power of attorney) and a healthcare power of attorney (also called a healthcare directive or advanced healthcare directive).

What is incapacity? What does it mean to be incapacitated? How long does it last?

Incapacity is when you are not able to make decisions for yourself. It could be short term, like if someone is in a coma after a car accident. Or it could be longer term like with dementia or Alzheimers. When someone is incapacitated, we hope they have a power of attorney in place so that someone can make financial and healthcare decisions during their incapacity. If they don’t have these documents, a loved one will have to go to court to get the right to make the decisions.

What is a will?

A will typically does three things in California: it revokes any prior wills, it names your guardians, and it says where you want your assets to go when you die. It only kicks in at the time of death. The will does not have any legal effect until someone dies.

What is a trust?

A trust is a legal fiction that is a way to maintain, control, and distribute assets. If you have a trust, you still have a will that pours everything into the trust to make sure that things are distributed per your trust. It’s your trust that will gift things to people, however.

Are there other terms you have heard and want to understand? Contact me for a complimentary consultation to discuss what you need and why.