Neither of us want to think about it, but one day we will no longer be in control of our personal and financial affairs. It could be that we are alive but unable to act, or that we have died.
But the reality is that life goes on after you die. Your assets (real estate, bank accounts, investments, etc.) still need to be monitored and your bills, debts and taxes still need to be paid. When you are no longer able to manage your affairs, someone needs the right authority to make the crucial decisions for you.
When embarking on your estate planning, you shouldn’t just think about who gets what. You should also consider who is responsible for making sure that your plans are met and that your wishes are met. People often use two important legal documents to authorize a person to act on their behalf: a will and a power of attorney.
Many people mistakenly believe that once they have given power of attorney to someone, the same person will act as executor when they die, or vice versa. It is important to understand that while the roles of executor and power of attorney may appear interchangeable, these documents operate in different timeframes and both are required to create a comprehensive estate plan.
What is an executor?
A will is a legal document that contains instructions on how to distribute your estate after your death. When creating it, you need to hire a person (or organization) to manage your estate. This person is known as the executor.
What are the tasks of an executor? In general, a named executor is responsible for carrying out the instructions and desires associated with a will. Your tasks include:
- Make funeral arrangements – Before an executor can focus on the main aspects of estate administration, the deceased must be properly dispatched with a funeral. In some cases, the deceased leaves certain requests or instructions regarding their funeral. The executor also reviews the will and other records to see if the deceased had insurance or a prepaid plan to help pay for the funeral. Depending on the situation, an executor may need to take the necessary steps to ensure that the funeral goes smoothly so that family members and loved ones have time to worry.
- Apply for a discount – – A court “estate grant” is required before a person has authority to act as an executor. The executor is responsible for managing the estate throughout the estate process and for filing the deceased’s will with the competent probate court. Probate ensures that the will is valid and that you receive legal permission to carry out your duties as executor.
- Preservation of assets – – One of the most important jobs of an executor is to properly preserve the deceased person’s assets until they can be properly distributed to the beneficiaries. Real estate or other property owned by the deceased must be secured and insured, and any cash remaining in the deceased’s bank account will earn interest.
- Convocation of assets and payment of remaining liabilities – – While the distribution of assets is the primary responsibility of an executor, it is important to first locate all of the deceased person’s assets. Finding the assets involves keeping track of critical documents, including bank and credit card statements, real estate notices and titles, mortgage documents, insurance documents, and unpaid debt statements. This ensures that all liabilities and expenses have been taken into account.
- Defend the property from legal challenges – If someone decides to challenge the will in court, an executor must intervene and defend the estate as “legal personal representative”. The two most common legal challenges facing enforcers are family benefits applications and grant reservations. Family benefit requests, also known as “will dispute,” are when a beneficiary wishes to receive an additional portion of the estate. If someone claims that the executor named in the will is incompetent for the mandate or questions the validity of the will, he can limit the estate. If there is any risk of any of these claims being made, contact an attorney as soon as possible.
- Manage tax matters – Another important task of an executor is to handle the deceased’s affairs with the Australian Income Tax Office (ATO). This includes notifying ATO of the person’s death. Depending on the circumstances, you may need to file a definitive tax return or an escrow tax return.
- Distribute assets – After all administrative tasks have been completed, the executors must pass the assets on to the beneficiaries. Ideally, the will contains a detailed report of who each asset goes to. Executors must ensure that each asset is accounted for and properly stored.
What is a power of attorney?
There is a common misconception that a person’s spouse can make financial decisions for them and manage their wealth if they are mentally or physically challenged. Unless your partner has been given formal authorization, decisions may instead be made by a government institution.
Establishing a Power of Attorney (POA) allows you to designate the person who you believe will make the best decisions to protect your interests. A Power of Attorney is a legal document that you can create that allows you to designate someone to make financial decisions for you when you are unable to. Usually this comes in handy when you get sick or have an accident where you were unable to make decisions on your own.
The person nominated for POA is known as an agent or your “attorney indeed”. Despite the term, the person does not have to be a lawyer or attorney to be qualified as an agent. In the meantime, the nominating person is known as the client. By creating a POA, you can identify who you believe will make the best decisions to protect your interests.
Basically, the powers that you can give your agent vary by state and law. In general, there are two types of powers: general and permanent.
General Power of Attorney
A general power of attorney allows you to appoint someone to make financial and legal decisions for you for a limited or specified period of time. This may be the case when you are working overseas, on vacation in another country, etc. This type of power of attorney does not give your agent the authority to make personal, medical, or lifestyle decisions on your behalf.
In addition, the appointment becomes invalid if the client loses the ability to make his own decisions. This means that the granted powers are revoked as soon as the client is officially classified as mentally incompetent.
Permanent power of attorney
A permanent agent is the most common form. It gives an agent the power to make financial and legal decisions on your behalf. But in contrast to a general power of attorney, it comes into force in a certain direction from the client or if the client lacks intellectual capacity. It remains in place even after a capacity loss, for example if you do not understand an act or agreement and cannot legally consent. Depending on the state or territory, the medical authority may or may not be included in a permanent power of attorney. In states that do not grant medical authority over this type of POA, separate approval is required to give them that authority.
How do these roles differ?
The main difference between an executor and an agent is when the roles take effect. The power of attorney can come into effect in situations where you are alive, but you cannot make independent decisions. In the meantime, your executor will not take responsibility until you die.
Additionally, the responsibilities for both roles are slightly different, although both of them will be involved in managing your affairs if you are unable to. An executor has a specific and limited job description: make sure your will is carried out and your assets properly distributed. On the one hand, an agent is responsible for a wider range of duties and responsibilities, which can include deciding on all kinds of decisions such as financial, legal and medical, depending on which aspects you have given authority over.
Can a person be both an enforcer and an agent?
It is not uncommon to choose a person who is both your agent and the executor of your will. Usually, people choose their spouse or oldest child for the roles. Because of the time difference in which these forces come into play, the two roles do not overlap. Note, however, that both roles come with great responsibilities. Either way, you need to choose the right person who you trust and who you think is highly competent.
Executor and Power of Attorney: What’s the Difference?
Last updated: December 21, 2020 Published: December 23, 2020
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