When it comes to estate planning and making decisions for the future, it is essential to understand the roles of various fiduciaries that can help manage your affairs. Two commonly used roles are an agent under a durable power of attorney and a trustee of a revocable living trust. While a comprehensive estate plan typically includes both a durable power of attorney and a revocable living trust, many people equate the two documents and the roles of the agent and trustee.
While both roles involve significant responsibility and a duty of care, there are several key differences between a durable power of attorney agent and a trustee:
1. Source of Authority
- Trustee: A trustee is granted authority under a trust document. A trust is a legal document in which the creator (the settlor) transfers assets to the trust to be managed by a trustee during the settlor’s lifetime and upon incapacity or death. In many cases, the trustee of a revocable living trust remains the settlor until the settlor becomes incapacitated or dies, at which point a successor trustee will step in.
- Durable Power of Attorney Agent: A durable power of attorney agent is granted authority under a durable power of attorney. A durable power of attorney is a legal document that allows an individual (the principal) to grant authority to someone else (the agent) to make legal and financial decisions on their behalf in the event of incapacity.
2. Scope of Authority
- Trustee: A trustee is responsible for managing the assets held by a trust in accordance with the terms of the trust document. A trust may own a variety of assets, including bank and investment accounts, real estate, business interests, and personal property. A trustee’s role may involve overseeing investments, managing real estate, making distributions to beneficiaries, and other related tasks.
- Durable Power of Attorney Agent: A durable power of attorney agent has authority to manage any assets that are not owned by the trust. This frequently includes retirement accounts, which typically should not be owned by a trust, but may also include any other asset that an individual did not transfer to a trust.
The agent also has the authority to handle the principal’s legal and financial matters, which may include anything from communicating with the Social Security Administration on the principal’s behalf to entering into contracts on their behalf.
3. Duration of Authority
- Trustee: A trustee’s authority generally extends for the duration of the trust. A trustee’s authority may extend beyond the settlor’s death, especially in the case of revocable living trusts. At that point, the trustee is responsible for managing and distributing trust assets to the trust beneficiaries.
- Durable Power of Attorney Agent: The authority of a durable power of attorney agent only lasts as long as the principal is alive. Unlike a trustee, an agent’s authority terminates upon the principal’s death. Once the principal has passed away, it is not only a breach of the agent’s duty to continue acting as agent, but it is also illegal.
While both a durable power of attorney agent and a trustee are appointed to act in the best interests of someone else, their roles and authorities differ. Understanding the distinctions between these roles is crucial for effective estate planning. If you are unsure about which option to choose or whether you need both, it is always a good idea to consult an estate planning attorney to ensure that your wishes are properly executed. Contact Absolute Trust Counsel today to discuss your estate planning options!
