Financial Fiduciaries – What Do They Do and What’s the Difference?
In preparing your estate planning documents, there are several fiduciary positions that will need to be filled or for which you will have the opportunity to make a nomination. There are four financial positions: (1) Trustee; (2) Personal Representative/Executor; (3) Agent/Attorney-in-fact under Power of Attorney; and (4) Conservator of your estate. While we generally recommend that the various financial positions be filled by the same individuals or professionals, because they are all handling financial matters, they do very different things.
Trustee. If a trust is to be created, you must select a trustee to manage the assets owned by the trust according to your trust instructions. The trustee does not manage assets that are not owned by the trust. The trustee will be required to invest assets, deposit income, pay bills and taxes, prepare accountings, and make distributions for beneficiaries as the trust provides. This may be for your benefit while you are alive or for the benefit of others. The trustee is a contractual position and does not require court approval. If the trustee is not doing their job appropriately, they may be removed in accordance with the terms of the trust.
Personal Representative/Executor. In your will, you have the opportunity of nominating a personal representative sometimes referred to as an executor. Following your death and after appointment by a court, your personal representative will gather and manage the assets of your estate, pay debts and taxes, and distribute the assets. These are assets that are not held in a trust and are not passing to a beneficiary or to a joint owner by rights of survivorship. While your nomination is given priority, because the court actually appoints the person, they can disregard your wishes and appoint someone they deem more suitable. This is one of the downsides of a will versus a trust.
Agent/Attorney-in-Fact. A power of attorney is a written authorization to represent or act on another's behalf in private affairs, business, or some other legal matter while that person is alive. The power can be effective upon signing the power of attorney or it can become effective on the occurrence of some later event such as incapacity. The person authorizing the other to act is the principal, grantor, or donor (of the power). The one authorized to act is the Agent, Attorney, or Attorney-in-fact. This person cannot act on your behalf in regard to your trust assets, only assets owned in your personal name. This document is done in conjunction with a trust as assets such as retirement accounts cannot be held in the trust.
Conservator. In your estate planning documents, you have the opportunity to nominate an individual or individuals to serve as conservator to take care of your financial affairs in the event you become incapacitated. A conservator is a court appointed position made after a determination of incapacity. It is possible that the court could decline to appoint your nominated conservator. Decisions made by the conservator have the legal backing of the court. With a trust and/or power of attorney in place, it is less likely a conservator would need to be appointed, but in certain instances it may still prove necessary. Without a trust and/or power of attorney, it is the only way to manage your financial affairs in the event of incapacity.
In planning for your estate, you should make sure that you have nominations or appointments for all four positions. These should be reviewed regularly to determine if they are still the persons you would want in charge when you no longer are.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.