The “Who’s Who” of Your Estate Planning
A common question I get is, what is the difference Between an Attorney-in-Fact, Executor and Trustee with respect to decision-making authority?
An important piece of the estate planning process is choosing who will make financial and health care decisions on your behalf during your lifetime, as well as naming persons or organizations to carry out your wishes after you pass away. The names assigned to these various roles might not be readily understandable and can be confusing. More than simply getting the names right, it is important to know who has authority to make decisions in instances where there is an apparent overlap in power. Below is a summary of the differences between an Attorney-in-Fact, an Executor/Personal Representative (PR), and a Trustee, to help you understand who has the right to make decisions in three common examples.
If you have executed a Durable Power of Attorney, then you have signed a document appointing a person to make financial decisions on your behalf. The document is called a Power of Attorney, and the person named to make decisions on your behalf is called an “Attorney-in-Fact” (otherwise known as an Agent). It is important to delineate the limits of an attorney-in-fact’s power. The person you name as attorney-in-fact is charged, as your fiduciary, with making financial and health care decisions using the highest standards of good faith, fair dealing and undivided loyalty in making decisions in your best interests and keeping your goals and wishes in mind at all times. Your Attorney-in-Fact’s power, however, is limited in two important ways. First, an Attorney-in-Fact is only permitted to act while you are still alive. Once you pass away, the Attorney-in-Fact loses all power. Second, an Attorney-in-Fact only has control over those assets not held in a trust, as trust assets are governed by a Trustee.
Executor/Personal Representative (PR)
A Personal Representative is named in your Will to martial your probate assets through the probate court process and ultimately to your beneficiaries upon your death. Probate assets are those assets in your name alone, as opposed to being held jointly, in trust, or in an account that utilizes designated beneficiaries. Where the Attorney-in-Fact’s power stops, the PR’s power starts. In other words, the PR has power only upon your death, over your probate assets only- over your non-Trust assets.
If you have a trust, then you have named a trustee to manage, invest, and distribute the assets in your trust. Unlike an Attorney-in-Fact, whose powers are limited to the period of time you are alive, or an Executor/PR, whose powers are limited to a period of time after you die, your Trustee can serve both during your lifetime and after your death. A Trustee’s powers, however, are limited to those assets held in the trust. A Trustee has no power over assets outside of the trust.
Attorney-in-Fact v. Successor Trustee- During Your Lifetime
When you become incapacitated, the authority granted to your Attorney-in-Fact will be activated under your Power of Attorney, and the power granted to your successor trustee will be activated in your trust. The scope of their respective decision-making authority will depend on the extent to which you have funded your trust. Your Trustee has exclusive jurisdiction and control over the assets in your trust, your Attorney-in-Fact has jurisdiction, subject to any limiting terms in the Power of Attorney, over everything else. If you have a trust and have funded it with all of your assets, your Attorney-in-Fact is going to thank you for making his/her life relatively easy.
Executor/PR v. Successor Trustee- After Your Death
Upon your death, your Attorney-in-Fact’s power ceases and your Executor’s power, assuming he or she is appointed by the Probate Court, commences. Your Executor/PR, however, only has power over those assets not in trust, not held jointly, or not in an account with beneficiary designations. Accordingly, the Executor or Personal Representative role may be limited. If you have a trust and funded it with most of your assets during your lifetime, your successor Trustee will have comparatively more power than your Executor.
“Attorney-in-Fact,” “Executor” or “Personal Representative,” and “Trustee” are designations for distinct roles in the estate planning process, each with specific powers and limitations. An easy take-away: Trustees have power over Trust assets both during and after your lifetime; your Attorney-in-Fact has power over your non-trust assets during your lifetime; and your Executor or PR has power over your Probate assets upon your death. Make sure to contact an experience Trusts and Estates attorney to have all your documents drafted properly so that you are taken care of both during your life, and after death.