Your will names an executor who seems to have some of the same powers as the trustee appointed in your will or in a separate trust document. And your powers of attorney name two different agents, who kinda sorta seem to do some of the same things as the executor and trustee. Who are all of these people and what do they do – and why do you need all of them?
AGENTS – act while you are alive
In estate planning, an agent is someone appointed to act on behalf of someone else (you) while that someone else is still alive.
Medical: If you sign a Medical Power of Attorney, you name an agent to make medical decisions if you (called the principal) are unable to make them because you are in a coma, suffer from dementia or are otherwise unable to make those decisions. Your agent is supposed to make the same decisions they believe you would make under the same circumstances. Most people name a family member or close friend, with whom they are likely to have discussed whether they would want to donate organs or undergo experimental treatments or are opposed to certain kinds of treatment. As long as you are capable of making medical decisions yourself, you retain that power.
Financial: An agent under a financial power of attorney, known in Texas as a Statutory Durable Power of Attorney, handles specified financial matters for you while you are alive but unable to make those decisions yourself. The Texas Estates Code provides a form with a list of powers such as “Real estate matters,” “tax matters,” etc. which are defined in the Code. You can grant some or all of the listed powers and attorneys often add additional ones. You can also choose to make the financial power of attorney effective immediately – because you have a serious illness or you are older and want a child to be able to handle matters for you. Or you can choose to make the power of attorney effective only when your doctor agrees that you have become incapable of handling your finances yourself.
Your Statutory Durable Power of Attorney is automatically revoked when you die, at which point the agent you appointed can no longer act for you. Instead, your executor or trustee takes over, depending on what documents you have in place.
EXECUTORS – act only after you die
Your will names an executor – the person you have chosen to deliver your will to the probate court and to handle the administration of your estate. That person has to go to probate court to ask for “letters testamentary,” which officially tells the banks, insurance companies, title companies and others that the person named is the proper person to hand over your money and other assets to. The executor will then open a bank account to put any money he collects that was yours, hunt down the rest of your assets, and prepare an inventory listing everything you owned. He pays the costs of the funeral and your other debts out of your assets. If probate takes a long time because someone contests your will, then the executor will has to invest your money while fending off your surviving family members who want their inheritance immediately. Then the executor distributes what is left to the beneficiaries you named in the will. For more details about what an executor does see FAQ #3 here.
TRUSTEES – may act while you are alive and after you die
You can set up a trust by signing a trust document during your lifetime for the benefit of yourself and your spouse or for your children and/or grandchildren – or for just about anyone. Some are irrevocable – usually designed to avoid taxes or protect assets from potential future creditors. Others are revocable, meaning you can revoke them during your life and they are often set up to avoid probate, avoid will contests, keep your estate private or provide ongoing trust protection for your kids or grandkids from their own potential reckless spending or from that of future ex-spouses. With a revocable living trust, you transfer assets into the trust during your lifetime and often act as the trustee. If you become incapacitated or die, a successor trustee that you named steps in to take control of the trust and distribute the money according to your instructions set out in the trust. When you die, the trustee does not have to go to court to be able to distribute assets from the trust, so assets are available almost immediately.
You can also set up a trust in your will – this is usually done for beneficiaries who are minors or have special needs. The executor will distribute assets that you left to minor children or special needs family members to the trustee instead, who will hold them to be used for their benefit. The executor will distribute the remaining assets directly to the other beneficiaries who you felt did not need the protection of a trust.
However you set up your trust, the trustee you name will set up financial accounts, sell assets, invest the money over the life of the trust, file trust tax returns, and make distributions to the beneficiary according to the instructions you left in the trust document. For more details about what a trustee does, see FAQ #5 here.
FIDUCIARIES
Some of your documents may refer to the trustee or the executor as a “fiduciary.” Whether or not the document uses that term, the agent under the Statutory Durable Power of Attorney, the executor and trustees are all “fiduciaries,” which means they have legal duties to act for the benefit of you or for the beneficiaries of your will or trust. They aren’t allowed to use your money (or the money you left to your kids or others) for their own benefit or anyone else’s. They have to use your money as you directed. If they don’t, they may be liable for damages.
Megan Baumer
Austin Estate Planning Attorney
Austin Medicaid Planning Attorney
Law Office of Michael Baumer
512-476-8707
Website: www.baumerlaw.com/estate-planning
Facebook.com/baumerestateplanning
