Estate planning is an area of law that can be confusing for clients in that there are several terms which have a precise legal definition but which are interchangeable in the minds of many clients. I hope to make the distinctions clear in this newsletter.

Those readers who have created a trust centered estate plan are aware that they are the Trustees for their revocable living trust. As Trustee, they have control over all of the assets that are titled in the name of their trust. The person who set up the trust and has transferred assets to such trust has a “trust estate”. As someone once said to me, “So the Trustee is the boss of the trust”. Exactly.

Trustees have only as much power and control over the trust as the trust document provides. If the trust document does not say that a Trustee can take a particular action, such as the ability to invest in real property, then the Trustee has no legal authority to purchase a parcel of real property in the name of the trust. Likewise, if the trust provides that the Trustee must account annually to the income beneficiaries, the Trustee must make a written accounting of all the transactions of the trust for the prior twelve months and send it to each income beneficiary of the trust.

The Trustee, however, has no control over any asset held by a person as an individual. Assets that are titled in the name of a person individually may be handled only by a court appointed Executor or by an agent under a durable power of attorney.

As stated above, a Trustee is the person who is authorized to act with regard to assets held in a trust. An Executor, however, is a person who has been appointed by a court of law to act for a deceased person through the probate process. Executors are only appointed if they have been named in a person’s Last Will and Testament. A person who dies without leaving a Will has an Administrator handling the probate process rather than an Executor, but the function is identical. If a person dies owning property in his or her own name, that person has a “probate estate” which must be administered by a court appointed Executor or Administrator. Sometimes the word “Personal Representative” is used instead of Executor, but Personal Representative is a broader term.

An Agent is the person who has the legal authority to act on behalf of another person. Agents are generally appointed by a Principal who has signed a power of attorney. An Agent may also be called an “Attorney-in-Fact”. An Agent acts as extra hands for the Principal much like a valued personal assistant. The Agent takes direction from the Principal in person or by the written instructions contained in the signed power of attorney.

The power of attorney signed by a Principal gives certain legal authority to the Agent. Under California law, powers of attorney are broadly placed into two categories: power over a person and power over assets.

Power over a person takes the form of a power of attorney for health care. Under current law, such power of attorney is called an Advance Directive for Health Care and contains two parts: a power of attorney and an advance directive to physicians. The power of attorney part gives the named agents the legal authority to make medical decisions for an incapacitated principal. The advance directive part tells the agent what sorts of treatment and procedures the principal would want given certain medical circumstances.

Power over assets gives the Agent the ability to manage the Principal’s financial affairs. Such powers can be general, in that they have a broad scope of authority given to the Agent. They might also be “springing” in which they only become effective after the Principal is certified by one or more physicians to be incapacitated. Many powers of attorney for assets are effective immediately upon signing by the Principal.

Powers of attorney should be “durable” and contain the phrase “This power of attorney will continue to be effective even though the Principal becomes incapacitated.” Without such language, the power of attorney is not durable and is not effective if the Principal becomes incapacitated.

Once the Principal dies, the Agent’s authority ceases. After death, the Principal’s property can be controlled by a court appointed Executor/ Administrator. If an Agent dies or becomes incapacitated, the power of attorney may identify a successor Agent who could then take over the former Agent’s responsibilities for the Principal’s property.

Selecting an individual as an Agent, Executor, or Trustee should be done after careful consideration. Such a person may be required to handle detailed financial transactions, make personal decisions for someone’s personal care or medical treatment, and report such actions to others such as beneficiaries, courts, and taxing authorities. The person selected for these tasks must be honest and trustworthy as well as have the ability to follow through with the many decisions that may need to be made.

Choosing an individual who is a family member has advantages and disadvantages. On one hand, the family member’s personal knowledge of family matters and level of personal involvement may serve the situation well. On the other hand, family members may have their own personal issues which may result in actions or communications that frustrate the administrative process.

Choosing a corporate entity may have the investment expertise and organizational skills to effectively administer an estate. Corporate entities usually charge a fee based on the fair market value of the assets under management. Sometimes a corporate entity declines to serve because the value of the assets is insufficient to make it worth their while.

It may be that a combination of corporate and family act as Agents, Executors or Trustees. You should discuss this more fully with your estate planning attorney as there are many creative solutions for finding the right person to administer a person’s estate.

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