The Basics of Living Trust & Power of Attorney Lending ComplianceBanker Resource
August 1, 2013 — 1,574 views
Living trust and power of attorney are very important while letting another person manage your assets when you cannot. Both of these are quite similar in role, but you must have both if you want to delegate your estate responsibilities to another person. Confusion about these documents can often create problems while taking or granting loans.
Many bankers are unclear about the difference between living trust and power of attorney. Trusts are created to avoid assets from going through probate. Trusts can be revocable or irrevocable, meaning that the assets can or cannot be reverted from the trust. Living trust is of the revocable type, and it is the most essential document for planning your client’s estate.
Like all other trusts, this one also consists of three parties – the grantor, the trustee and the beneficiary. When done properly, the trustee is able to handle all the affairs of the assets inside the trust. If the trust is empty, the trustee does not have authority to handle any affairs.
Fair lending compliance says that just in case a reverse mortgage client’s assets are associated with a trust, then he or she should be the only beneficiary of the trust. In case your client is applying for a reverse mortgage on an asset associated with a trust, you should ensure that he or she alone is entitled to mortgage that asset. Also, check whether that trust is a revocable one or not, because properties in irrevocable trusts cannot be mortgaged.
Power of Attorney
Power of attorney, on the other hand, lets someone else step into the shoes of an incapacitated person. Power of attorney lending compliance gives authority of operations of assets that are not included in the trust, but are separately included in the attorney document. Power of attorney can also be granted for a person to be given authority not only towards the assets, but also the other aspects of life of the grantor – like making important decisions or reading the mail.
For this reason, for a reverse mortgage to be granted to a client who holds a power of attorney, you need to make sure that the person is executing the decision in the right state of mind. Apart from that, you also need to check that the attorney document allows the mortgaging of the asset which the client is trying to encumber.
Another thing to remember is that there are two different types of powers of attorney. The first type is where the power to take important decisions is handed over as soon as the grantor signs the document, whether or not he or she is incapacitated. The other type is where the power is handed over only when the grantor is physically or mentally no more in a state to take important decisions by himself. You also need to check the attorney type and abide by the corresponding lending compliance.
Power of attorney and living trust together can serve as an integrated estate planning tool, but they should not be confused with each other. Though they are similar and serve similar purposes, you must remember their differences while considering a loan or mortgage. A little less confusion over these documents can serve well for both the lender and the borrower.