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Estate Planning Capacities

By: Heidi R. Kemp
Emens Wolper Jacobs & Jasin Law Firm

In estate planning, there are various capacities in which someone can serve. The names of these capacities and what you are allowed to do in each one can sometimes be confusing. It is very important to know what your authority is and when it ends. Here are some of the more common terms:

• Agent under a Health Care Power of Attorney: A health care power of attorney allows someone called the principal to name someone to make medical decisions for her if she is unable to make them herself. The person she names is called an agent. The document itself will dictate what the agent may do on behalf of the principal and the authority ends when the principal dies.

• Agent under a Financial (Durable) Power of Attorney: A financial power of attorney allows someone called a principal to name someone to make financial decisions on her behalf. The person she names is called an agent or an attorney in fact. The document itself will dictate what the agent may do. This power can be one that is effective as soon as the document is signed or the powers can “spring” into effect upon a certain event, usually the principal’s incapacity. The agent’s authority ends when the principal dies. Often, people think they can still act as agent and pay for things out of a principal’s account once the principal has died. Unless the agent is actually a named owner on the account, this is not true.

• Executor: In a Last Will and Testament (“Will”), a person names an Executor. Naming an Executor in a Will is really more of a nomination. The Executor has no power or authority until he or she is actually appointed by the appropriate Probate Court as the Executor of the estate. So, if something needs to be done for the decedent, the agent under the power of attorney no longer has authority and the Executor does not have any authority until officially appointed. Many people think just because they are named in the Will, they can take certain actions after the person dies. This is not true until the Probate Court makes the appointment official. The Executor is responsible for handling the deceased person’s probate estate. Again the Will will dictate what powers the Executor has. But, often the powers include anything the Executor needs to do to step into the shoes of the decedent and wrap up his or her affairs, such as, complete final taxes, collect all assets, sell assets, and distribute the assets in accordance with the Will.

• Trustee: Not every estate plan includes a trust but many do. A person who creates a trust is often called the Grantor or the Settlor. The Grantor names a Trustee (and often Successor Trustee(s) to step in if the originally named Trustee can no longer serve). The Trustee can be an individual or a corporate trustee. The Trustee is primarily responsible for administering the trust in accordance with its terms. The Trustee will be responsible for paying any expenses of the trust and for completing any necessary tax returns. The Trustee will be responsible for investing and maintaining any assets held by the trust. The Trustee is also the person who distributes funds from the trust based on what the terms of the trust dictate. The powers of the Trustee are usually very broad to allow the Trustee to take whatever actions are necessary to effectuate the terms of the trust.

• Beneficiary: There are several ways a beneficiary can be designated. For financial accounts, there may be a payable on death beneficiary. For investment accounts and real estate, there may be a transfer on death beneficiary. Life insurance, retirement accounts, and some annuities allow for a beneficiary designation. Trusts also name beneficiaries. Usually, beneficiaries have no right to the assets or account(s) until the accountholder dies. And, the type of account and designation will dictate what rights the beneficiary has.