What is the Difference Between a Successor Trustee of a Trust and an Agent Under Financial Power of Attorney, and More Common Questions…
It is common for close relatives to be designated as a Successor Trustee of a Trust and Agent under Financial Power of Attorney (e.g., elderly parent will often designate an adult child to fill these fiduciary roles). But when the time comes to act (e.g., parent is no longer able to handle their financial matters to due advanced age or illness), most nominated Successor Trustees and Agents have the following common questions:
Q: What is the difference between a Successor Trustee of a Trust and an Agent under Financial Power of Attorney?
A: A Successor Trustee is the person or entity designated in the trust that will manage assets owned by a Trust if the initial Trustee resigns, becomes incapacitated, or dies. A Successor Trustee only manages assets that are owned by the Trust under the terms of the Trust. A Successor Trustee has no control of assets outside the Trust. Successor Trustee may act both during the lifetime for the benefit of the Trustor(s) and after the Trustor(s) death for final post-death trust administration and distribution to the contingent Trust beneficiaries.
A Financial Power of Attorney is different- an “Agent” is nominated to manage the principal’s individual financial matters; an Agent under Financial Power of Attorney has no authority over Trust owned assets. Even with a Trust, you need a Financial Power of Attorney for the reason many financial matters occur outside the scope of trust administration (e.g., managing retirement accounts, pension income, vehicles, lawsuits, filing personal tax returns, etc.). Your Agent has only the powers specifically laid out in your Financial Power of Attorney document; some documents grant broad powers, while others grant fewer powers. An agent’s role may either be effective immediately or springing upon incapacity as evidenced in a physician(s) statement. A Financial Power of Attorney is only effective during the principal’s lifetime; the Financial Power of Attorney is automatically terminated upon the principal’s death.
Q: Does serving as a Successor Trustee or Agent make me personally financially responsible for the Trustor’s (e.g., parent) debts and liabilities?
A: No. So long as you properly indicate the legal fiduciary capacity in which you are acting when signing all checks, contracts, agreements, etc. For example, if you are Joe Smith (Successor Trustee and Agent) and you are handling the trust and personal financial matters for Mary Smith you should sign as follows:
How to sign your name as Trustee: Joe Smith, Successor Trustee
How to sign your name as Agent under Financial Power of Attorney: Mary Smith, by Joe Smith, her Agent
If, instead, you simply signed your name “Joe Smith” you would not be signing in a fashion to evidence your fiduciary capacity and likely could be personally obligating yourself. The details are critical; you should always execute documents correctly to avoid personal financial obligation.
Q: What documents do I need to show the financial institutions that I have accepted the nomination as Successor Trustee and Agent and currently have authority to act.
A: To assume your role as Successor Trustee you will likely need an Affidavit of Appointment of Successor Trustee along with the resignation, proof of circumstance of your appointment (e.g., resignation, incapacity (as required by the express terms of the trust), or death certificate of prior Trustee), and Certification of Trust. These documents will need to be provided to the financial institutions, and then you will also need to complete additional forms as required by each financial institution.
To assume your role as Agent, if the Financial Power of Attorney is effective immediately the document needs to be provided to each financial institution. If the Financial Power of Attorney is effective only upon the principal’s incapacity, you will also need to obtain and provide proof of the same as specifically prescribed in the power of attorney (e.g., one or two medical statements or other requirements). Each financial institution will also likely require you execute their additional forms.
This process will typically take several days as the financial institution will likely need to submit the documentation to their legal department for approval before recognizing your authority to act. The details are important in these documents; advice and documents prepared by an experienced estate planning and elder law attorney is recommended. You need to be sure to provide the correct documentation depending upon whether the assets are owned by the Trust or individual.
Understanding how each document works and your legal responsibilities is important if you are handling someone else’s financial matters as a Successor Trustee or Agent. Call our office at 480-922-1010 or email firstname.lastname@example.org for an appointment with one of our experienced attorneys. We routinely represent individuals and entities who serve as Successor Trustee and Agent under Arizona trusts and powers of attorney and would be happy to help guide you.