Estate Planning Basics

April 01, 2022


Do you ever wonder about the difference between a Healthcare Power of Attorney and a Power of Attorney? What about an Executor and Trustee? It’s easy to get confused due to the numerous terms, definitions, and positions in the Financial and Estate Planning world. Below is a simple breakdown of some of the common players.

Power of Attorney (POA): A POA is a legal document that gives someone you choose the power to act in your place in financial and legal matters. There are different levels of authority this document can give. Generally, this document is drafted by an attorney, but there are also more generic fill-in-the-blank type of documents. A Limited POA can be used to give specific powers to a person, like paying bills or signing on your behalf for a real estate transaction. A General POA is a much broader authority, and that person can do anything you can do, without exception. A POA should be an individual person or trusted fiduciary service and generally most trust companies or banks will not act as POA. One other important consideration is to speak with your legal counsel as to how and under what conditions your POA is activated; some are immediately effective when you sign, others may require specific medical proof of incapacity to become effective. Lastly, these powers generally terminate at death. Even if you have a trust, a POA can be very important, as things outside of your trust – like your IRA account – could be managed by someone else via a POA.

Healthcare Power of Attorney (HPOA): The HPOA, sometimes referred to as advance healthcare directive, is a legal document which identifies who you want to make healthcare decisions for you if you become incapacitated. This document also details the type and level of medical care one wants to receive and may include end-of-life decisions. (Sometimes this is a separate “Living Will” document governing end-of-life instructions.) A HPOA should be an individual person or trusted professional fiduciary. A trust company or bank generally cannot act as your HPOA.

Executor / Administrator / Personal Representative: An Executor is a person appointed by the decedent’s will to settle an individual estate, typically via the probate court process. An Administrator is a person appointed by the court to settle the estate. Many times, courts do not distinguish between an Executor and Administrator, but instead refer to them as the Personal Representative (PR), and this also may simply vary by the state in which you live. This position has many duties in the settlement of the decedent’s estate, including locating assets, taking control of those assets, notifying beneficiaries, tax or other regulatory compliance matters, distributing assets to beneficiaries, along with reporting requirements. A Personal Representative is most commonly an individual person and there can be restrictions as to who can serve (e.g. in many states the representative must reside within the state).

Trustee: The Grantor (also called the settlor, trustor, creator, or trust maker) is the person who creates a trust. The Trustee manages the assets that are in the trust. Many grantors choose to be the Trustee and continue to manage their affairs for as long as they are able. Married couples are often Co-Trustees so that when one dies or becomes incapacitated, the surviving spouse can continue to handle their finances with no other actions or steps required, including court interference. A Successor Trustee is named to step in and manage the trust when the original Trustee is no longer able or willing to continue management. Typically, several Successor Trustees are named in succession in case one or more cannot act, and sometimes two or more adult children are named to act together. A Corporate Trustee (bank or trust company) or Private Fiduciary may also be an appropriate choice for many families or individuals.

The above is not intended to be legal advice. The estate planning process includes many nuanced topics and should be discussed in depth with your estate planning attorney.