Can a Durable Power of Attorney Set Up Trusts?

When you create a power of attorney, you give else the right to make legally binding decisions on your behalf. The power of attorney document creates a principal-agent relationship, with you as the principal and the person receiving the power the agent or attorney-in-fact. Power of attorney laws differ between states, and though you can generally allow your agent to create a living trust, you should talk to a lawyer for legal advice about how to do this.

Your attorney-in-fact can only do that which the power of attorney allows him to do. For example, some powers of attorney grant the agent the right to make health care decisions for you when you are sick, while others give the agent the right to take care of your finances. While you can grant your agent the right to create or modify living trusts for you, you must ensure he power of attorney document meets all state requirements for passing this kind of power.

A "hot power" of attorney is one that must be specifically included in a power of attorney according to state law. If it is not, the agent does not have the power to perform that task, even if the principal grants a general power of attorney. For example, Virginia allows agents to create, change or terminate living trusts on behalf of the principal, but only if the power of attorney document specifically grants this power. Under no other power of attorney is the attorney-in-fact allowed to create a trust.

A power of attorney takes effect whenever you want. For example, if you want to give your agent the right to create a living trust immediately, that power is granted as soon as you properly execute -- write and sign -- the power of attorney document. On the other hand, if you want your agent to create the trust at a specified later date, you can still execute the document today, but as long as the power of attorney specifies the time restrictions, the agent cannot act until then.

Whenever you grant power of attorney, you have the right to cancel that power at any time as long as you remain of sound mind. Also, all powers of attorney terminate as soon as you die. However, your agent can continue to act until he receives notice of termination or notice of your death. For example, if you mail your agent notice of termination, the agent can still create a trust on your behalf until he learns of being terminated.