Most estate plans include both a Durable Power of Attorney and a Trust.  As I’m talking with clients about selecting people to serve in the roles, the question comes up: what is the difference between these two jobs?   The truth is that while the job descriptions overlap, they are two very different roles. 

Trustee:  A Trustee only has control over assets in the name of the Trust.  See my blog post on the Care and Feeding of Trusts for an explanation of how assets get into a Trust.  The power of the Trustee is valid during the life of the principal, the incapacity of the principal[1], and even after the death of the principal.

Attorney-in-Fact:  An “Attorney-in-Fact” or “Agent” is the person authorized to act under a Durable Power of Attorney.  An Attorney-in-Fact is only able to act for the principal during the principal’s lifetime.  Once the principal is deceased, the Attorney-in-Fact has no more authority.   The Attorney-in-Fact has no power or control over the assets in the name of the Trust. 

In a typical situation, a client’s home and non-retirement investment assets would be in the name of their Trust during their lifetime.  The Trustee would be in control of these assets during the principal’s lifetime and after his/her death.  The Attorney-in-Fact is always in charge of the retirement accounts, such as the IRAs and also in charge of the day to day financial dealings such as hiring a plumber to fix the principal’s sink.  The Trustee would sell the house or oversee a major construction project such as an addition.

Trustee

Attorney-in-Fact

Usually the Principal starts as his/her own Trustee until incapacity or death

You can not name yourself as your own Attorney-in-Fact because you have control over your assets until you delegate that power or become incapacitated.

Control over assets in the name of the trust

Control over assets not in the trust such as retirement assets

If a checking account is in the trust, the trustee may pay bills

If the AIF has his/her name on the checking account, the AIF may pay bills

Control continues during incapacity and death of principal

Control continues during incapacity but ends at death.

Has no control over retirement assets

Has control over retirement assets

 

Seeing the overlap in their roles, the next question is: should the Trustee and the Attorney-in-Fact be the same person?  There are definite efficiencies in having the same person in both roles.  If you have someone you trust completely to handle all aspects of finances, it makes sense to have the same person manage all the finances, both retirement and non-retirement assets as well as your real estate and bank accounts.

However there are advantages to having two different people too.  First of all, having all the work on one person’s plate is a lot, and spreading it out over two people involved lightens the load.  Another advantage is that you will have two people watching out for you instead of just one.  Finally, your two financial managers can be a check and balance on each other and it is less likely that either one will take advantage of you.

What about the type of person you should select for these jobs?  While financial ability and understanding is a bonus, it is not required.  Your Attorney-in-Fact and Trustee can hire professional financial advisors to give them advice.  Honesty and fairness are much more important as is understanding of your financial needs.

[1] The Principal is the person creating the Durable Power of Attorney and naming the Attorney-in-Fact to act on his/her behalf.