Using a Power of Attorney in Managing Your Deferred Sales Trust

If you have a complex asset portfolio that you plan to place into a deferred sales trust, you may want to appoint an agent under a power of attorney (POA). A POA can help ensure your wishes are carried out by working with the trustee to manage the sale of assets and the reinvestment of proceeds. You can establish a POA during the estate planning process so a trusted individual is ready to step in if you become unable to make decisions yourself.

The experienced estate planning attorneys at 453 Trust Powered by Pennington Law can guide you through the process of setting up a power of attorney, explain its potential benefits, and advise how a POA’s responsibilities may intersect with the management of your DST. Call or contact our law firm today for a free consultation to learn more about using a power of attorney in tax-deferral trusts. 

How a Power of Attorney Works With a Deferred Sales Trust

Setting up a DST to defer capital gains taxes from the sale of appreciated assets is an attractive option for many people. When you add a power of attorney to your legal strategy, you get more protection. For example, if you became incapacitated in the middle of transferring assets to the trust, the POA could work with the trustee and other professionals to complete the process without unnecessary delays.

It’s essential to understand the difference between the duties of a trustee vs. an agent acting as POA. The trustee is the individual or entity responsible for managing and selling the DST’s assets according to the terms of the trust agreement. By contrast, a POA has the legal authority to act for you or a beneficiary by approving or disapproving certain decisions without taking control of the trust itself.

When to Appoint a Power of Attorney for Your DST

You can appoint a power of attorney at any time, and not just to manage your DST and asset protection matters. A POA can act in circumstances that you outline when you appoint them, which you can include in your estate plan.

Circumstances under which you might use a power of attorney in connection with a deferred sales trust include:

• If you are diagnosed with a serious or terminal illness
• If you want a safety net in place in case of an accident that results in mental incapacity
• If you travel frequently and need someone local to review or sign trust-related documents
• If you need a second set of eyes to help you ensure that you’ve moved all the assets you intend to sell into the deferred sales trust
• If you want someone to coordinate with the trustee or financial planners on decision-making for reinvestments
• If you need a professional to review the trustee’s recordkeeping for IRS compliance

Key Responsibilities of a POA in Managing a DST

An agent under a power of attorney may have various responsibilities during the formation and management of a deferred sales trust, depending on the scope of authority conferred by the POA document. Typical duties may include:

• Facilitating the transfer of assets into the deferred sales trust
• Signing transfer documents on behalf of an asset owner when the owner cannot attend or they become temporarily or permanently unable to do so
• Acting on behalf of the trustee to manage complex asset portfolios

Benefits of Using a Power of Attorney for DST Management

Some of the advantages and benefits of using a POA in connection with a deferred sales trust include:

• Handling management of assets outside of the deferred sales trust – An asset owner can rely on their agent to help manage assets not yet placed in the trust. An agent can provide additional oversight that may prevent an owner from overlooking assets they intended to put in the deferred sales trust, avoiding potential legal complications or challenges when reinvesting wealth through a DST.
• Assisting with managing or preserving DST assets – The trustee of a deferred sales trust can authorize an agent through a power of attorney to help manage the trust’s assets while they await sale. This agent can handle practical tasks such as paying bills or taxes, arranging maintenance, or signing legal documents on behalf of the trust, ensuring the assets remain in good order and protected until they are sold.
• Enabling more efficient time management – When a deferred sales trust handles a complex asset portfolio, asset owners and trustees may execute powers of attorney to appoint agents to act on the asset owner’s or trustee’s behalf when management of the trust requires parties to handle numerous transactions simultaneously.

Legal Requirements and Compliance Considerations

A power of attorney requires a principal — either an asset owner or trustee in a deferred sales trust — to execute a signed document appointing an agent/attorney-in-fact. Some jurisdictions require a principal to have a power of attorney notarized, and some financial institutions won’t recognize a power of attorney unless notarized. The principal must have legal capacity to execute documents when signing the POA.

The power of attorney document should describe the scope of the agent’s authority, including the actions the agent can take on behalf of the principal. A power of attorney can include an expiration date or describe conditions under which the document expires. Finally, a principal can create a durable power of attorney, which continues in effect even if the principal becomes incapacitated (by default, powers of attorney terminate upon the principal’s incapacity).

When using powers of attorney in connection with a deferred sales trust, you may need to keep various compliance considerations in mind, such as:

• A deferred sales trust must have a bona fide third-party trustee. Should the trustee have any connection to the person who transfers their asset(s) into the trust for sale, such as through an agent the trustee appoints, the IRS may view the DST as a sham trust.
• Each state has different requirements for creating a valid power of attorney, with requirements sometimes depending on the purpose of the power of attorney.
• Some financial institutions have specific requirements for powers of attorney before the institution will recognize a POA.

Contact Us to Set Up a Trusted Power of Attorney for Your DST

Need guidance on whether executing a power of attorney is right for you? The experienced lawyers at 453 Trust Powered by Pennington Law can discuss how a POA could add a layer of security as you plan your finances. Call or contact us today for a free consultation.