There are several situations in which someone you care for may give you the legal authority to act on their behalf.
Two of these situations are as the executor of an estate and through a power of attorney document. Both allow you to handle legal matters for someone else. However, they occur at two different points in time and are very different responsibilities.
Estate Planning Documents
When a person creates an estate plan, their attorney will usually recommend that they execute several documents at the same time, so that they have complete protection. These usually include a will, a health care advance directive, and a power of attorney. A living trust might also be included.
In each of these documents, they name someone who will make certain decisions on their behalf during life or handle their affairs after death. Frequently, the same person is named in each document.
For example, a married person will likely name their spouse to make health care decisions if they are unable to, handle their financial and business affairs if they are unable, be the trustee of their living trust, and manage their estate after death.
It’s not uncommon though to select a different person for each role and each person chosen is then limited to only the authority in that particular document. The authority in each document does not cross over or have any impact on the other documents.
The Role of an Executor
A last will and testament is a document that directs how a person’s (called the testator) belongings and assets will be distributed after their death. The will names beneficiaries, the people who will receive those bequests. Someone has to actually carry out the testator’s directions and ensure that the beneficiaries receive their bequests. That person is the executor (called a personal representative in some states).
The will names an executor who takes on the responsibility of making sure the will is submitted to the probate court, processed through the court, and that assets are distributed according to the will. This process is called probating the will. When a loved one names you as the executor of their will, they give you the responsibility of ensuring their last wishes are carried out after death. An executor only has the right to handle the testator’s affairs after their death, not during their life.
Most executors hire an attorney to represent the estate and handle all the legal and financial technicalities (estates of small value can usually be handled in a faster and simplified small estate proceeding).
As an executor, you will first be sure that all the assets and debts of the estate are identified. A bank account is usually opened by the executor in the name of the estate and is used to pay creditors (such as the last utility bill, a final income tax return, and funeral costs) using the estate’s assets.
Some of the estate’s assets may have to be sold to pay the creditors and the attorney will help with those decisions and procedures. The remaining assets are then legally transferred to the beneficiaries. The attorney will then provide a complete accounting to the court and the case will be completed.
In most states, executors are entitled to a percent of the value of the estate as a fee for their time and effort, but many family members waive this. The attorney is paid for by the estate’s funds. It usually takes several months to completely probate a will from start to finish.
The Role of an Attorney-in-Fact
A power of attorney is a document that is valid only during the life of the principal (the person creating it). It gives authority to another person, called the attorney-in-fact (some states call this an agent), to make financial or business decisions for the principal.
There are several types of powers of attorney documents. Some become valid when they are signed and stay in effect until the principal’s death (called a durable power of attorney). Others, called springing powers of attorney, do not become valid until a certain event occurs, such as the principal becoming incapacitated and unable to make their own decisions, or something as simple as being out of the country.
The attorney-in-fact can be given broad powers including the ability to buy or sell real estate or investments; run a business; pay the principal’s bills, cash their checks, or withdraw money from their accounts; file lawsuits on their behalf; hire people to work for the principal and more. A limited power of attorney may identify just one or two of these specific powers the attorney-in-fact is given.
Each state has its own power of attorney form. A power of attorney never gives the attorney-in-fact the authority to create or alter the principal’s will or to manage any of their affairs after they die. It is only in effect during the principal’s life.
It’s also important to note that a power of attorney is only for financial, legal, and business matters. Some states have a health care power of attorney (sometimes called an advance directive or health care proxy) which designates a person who can make health care decisions for a principal who is unable to make their own decisions, which is an entirely different document.
Attorneys-in-fact and executors both take on legal and financial responsibilities, but one occurs during the principal’s life and the other after their death. The authority does not cross over. If you are the attorney-in-fact, you can act during the person’s lifetime. If you are the executor, you are only in charge of their estate after their death.*
When you're ready to plan for the future, download our Savvy Guide to Estate Planning. Our free guide takes the fear and worry out of creating an estate plan and tells you what you need to know to get it done. Download your copy here.
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*This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.