An Explanation of the Differing Roles of Fiduciaries

Attorney Christine S. Anderson

March 2016

In the estate planning context, there are varying fiduciary roles for individuals to play. It can be difficult to keep them all straight. In this article, an explanation of the tasks undertaken by particular agents will be explained. It is useful to categorize these relationships based on the situation in which the agent is acting.

Agents that act only during the principal's life:

Attorney-in-fact for health care matters. When a person signs a durable power of attorney for health care that person, known as the principal, designates another person, known as the agent, to act on behalf of the principal if the principal becomes incapacitated in a way that renders the principal unable to give informed consent to medical procedures. It is the principal's physician who determines if the principal is incapacitated. If activated, by the physician, the agent's job is to make medical decisions for the principal. The agent is sometimes referred to as the health care proxy or the power of attorney, but technically it is the document that designates the agent that is the power of attorney. When the principal dies, the agent's authority terminates.

Attorney-in-fact for financial matters. A durable general power of attorney designates an agent to act on behalf of the principal in relation to financial matters. The exact scope of the agent's authority depends on the document itself; however, typically a durable general power of attorney gives broad authority to the agent to handle all aspects of a principal's financial life. When a person designates another to act on his or her behalf with respect to financial matters, most often, that agency relationship is not activated until the principal becomes incapacitated. In some cases, however, it is possible for a principal to designate another to act as his or her agent for convenience. For example, if a person will be out of the country on the date on which his or her home will be sold, he or she can sign a power of attorney and designate another to act on his or her behalf at the real estate closing. In a more common situation, a person signs a durable general power of attorney for finances and arranges for that document to be released to the agent in the event of the principal's incapacity. When the principal dies, the agent's authority terminates.

Agents that act only after the death of the principal:

Executor. In a will, a person designates someone to be in charge of his or her affairs following the person's death. The designated person is called the executor. The executor is nominated in the will, but is not officially the executor until the judge appoints the executor and issues a certificate of appointment.

Administrator. The administrator is the name used for a person who handles a person's estate when there is no will. The administrator performs the same function as an executor, only in the context of an intestate estate (an estate of a person who died without a will.)

The job of the executor/administrator is to shepherd probate assets through the probate process. It is the responsibility of the executor/administrator to ensure that the assets of the estate are managed during the probate process, this includes making sure final debts are paid and the remaining assets distributed to the beneficiaries of the estate.

Agents that can act both during incapacity and after death:

Trustee. The trustee is the person designated to carry out the terms of a trust and manage the assets for the benefit of the beneficiaries. In the most common form of trust that we use, a revocable trust, the initial trustee is typically the same as the person who creates the trust, known as the grantor, and he or she remains the trustee while competent. In the event the grantor becomes incompetent, a successor trustee, who is usually named in the trust document becomes trustee and administers the trust for the benefit of the grantor. Most often, the trustee who takes over in the event of the grantor's incapacity continues to serve after the grantor's death. On occasion, our clients choose to designate a different trustee to serve after death, someone other than the trustee who is designated to serve in the event of the grantor's incapacity. Once the grantor passes, if a successor trustee is not acting already one will take over. The trustee's job following the death of the grantor is to continue to manage the assets in the trust and carry out the terms of the trust which can include paying final debt of the grantor and making distributions to beneficiaries as directed in the trust.

In the event of a person's incapacity, it is possible to have a trustee acting on behalf of the principal, with respect to assets titled in the trust, and also have an agent, or attorney-in-fact acting on behalf of the principal with respect to assets that are not titled in the trust.

In the context of irrevocable trusts used for estate, gift and generation skipping transfer tax purposes, it is most often not advisable to have the grantor serve as trustee. In these situations, the grantor creates the irrevocable trust and transfers property to the trustee who, by signing the trust, agrees to hold the trust assets for the benefit of the beneficiaries on the terms spelled out in the trust.

Guardian. The guardian of a minor child is designated in a will and most often only serves in the event that there are no living parents. In this context the guardian is named in a will but must be appointed by the court in order to officially serve as guardian. It is also possible for someone to serve as guardian for a minor child if the child's parents are unable to care for them as a result of the parent's illness or unavailability as a result of incarceration or military service, for example. The guardian will make decisions, including where the child lives, where the child goes to school and heath care decisions for the child. A guardian may also manage assets that are in the child's name if such assets exist.

It is sometimes appropriate for a guardian to be appointed for an incapacitated adult. If an adult becomes incapacitated as a result of dementia, for example, and the adult has not signed durable powers of attorney for health care and finances, then a guardian may need to be appointed by the court to act on behalf of the incapacitated person.

If you have questions about the distinction between the various fiduciary roles outlined in this article, or who you have designated in the various roles, call the office and make an appointment to see Alyssa or me. We would be happy to meet with you to discuss these issues.