Identify role, responsibility of persons in estate planning

Money Matters By John J. Grande, CFP, Traudy F. Grande, CFP, and John S. Grande, CFP

Once the key estate planning documents are established-which include a will, a durable power of attorney for financial matters, a health care power of attorney, and a living will-it is important to outline the roles and responsibilities of the individuals named to serve in those documents.

Each document requires that you name someone to help you either during your lifetime or at death. Key people to name include:

  • Executor
  • Guardian
  • Agent (DPOA)
  • Agent (Health Care)
  • Trustee

Estate planning roles

One of the most important decisions in estate planning is picking the person, or people, who will be in charge of your assets and legally obligated to act in your interest. The task of each of these individuals is slightly different. It is recommended to name more than one alternate for each role, but you may also name two persons to act together, such as co-trustees or co-executors.

Executor

An Executor is someone who carries out the directions in the will. The executor is sometimes referred to as “personal representative” for this role. If you leave no will and your estate is managed by probate court, this role is sometimes referred to as “administrator.”

This person is responsible for collecting the assets of the estate, protecting estate property, preparing an inventory of the property, paying valid claims against the estate (including taxes), representing the estate in claims against others, and distributing the estate property to beneficiaries. It is important to know that the executor only controls property or assets that are subject to probate.

Guardian

If a minor child is involved, a Guardian needs to be appointed to raise the child in the event both parents die before the child becomes an adult. While the likelihood of this happening is slim, the consequences of not naming a guardian are great. If a guardian is not named, a judge will decide who will raise the child.

This is an important role to revisit over time. For example, early in the child’s life you might name a parent or grandparent as guardian. As the toddler becomes a teenager, it may be wiser to name a sibling (who is closer in age to you) rather than an aging parent or grandparent.

Agent (DPOA)

In a durable power of attorney (DPOA), you give authorization to a certain person, or people, to make decisions on your behalf when you are not physically or mentally capable. This person is known as an Agent.

Realize that this document and person have control only during one’s lifetime. The power terminates at death, when the will or trust instructions become effective.

This is an important document to have to avoid court intervention at a stressful time. Imagine that you don’t have this document and are severely injured. On top of the health concerns, your family may need to deal with court appearances to manage your finances or make certain financial decisions on your behalf.

Agent (Health Care)

Deciding who will be named as your Health Care Agent is one of the more difficult and important decisions in estate planning. The health care agent receives a durable power of attorney for health care from you, which gives your agent the power to make medical decisions if you are incapacitated or unable to make medical decisions.

The health care agent cannot override any health care preferences you set out in a living will, but will have complete authority to make any other medical decisions.

If you have strong feelings about your health care, this is the place to specifically express them.

Trustee

If you create a revocable living trust, you will name a trustee, or co-trustees, to manage your assets. Realize that the trustee will control those assets in the trust. He or she will manage that property as directed in the trust.

If your trust directs that the trustee ensure all bills are paid, all debts owed to you are collected, and all assets are distributed in a timely fashion, the trust will end fairly soon after your death.

On the other hand, you may want your trust to endure for years or decades. This allows you to control how assets are managed and distributed over time.

Perhaps you have a spendthrift or minor child who you want to provide income over time. In this case, the trustee will serve for the time period you direct in your trust.

Asset titling, beneficiary designations

Let’s take a closer look at account titling and beneficiary designations. You can liken these topics to off-ramps on an interstate highway.

Depending on how assets are titled or beneficiaries designated, assets can go different directions at your death.

For example, assets titled in your name alone are governed by your will and go through probate. Assets in a trust or held in joint tenancy will bypass probate. Neither direction is right or wrong, but one or another may be more suitable for you. Discuss these possibilities with your attorney.

Let’s take a closer look at how titling matters, starting with assets in one’s individual name. The executor will control these assets, and he or she will follow the directions in the will. The assets will be distributed at the conclusion of the probate process.

Assets in a revocable trust are controlled by the trustee or successor trustee. The trust document provides instructions, and they will be distributed or managed according to the terms in the trust.

A beneficiary designation acts differently. This is a contract between an individual and the financial institution, and the terms trump everything else-even what the will or trust instructs. The beneficiary will file a claim, and the financial institution will distribute the asset. No probate. No governance by a will or trust instructions.

Finally, when an account jointly is titled with someone, such as a son or daughter, the son or daughter owns that asset at your death. That outcome may be a mistake.

If your intent was that the son or daughter would divide the value of that asset among siblings, that may or may not happen. Even if it does, it could have gift tax consequences for that child.

Or perhaps, you become incapacitated and the other owner wants or needs to move the account. The financial institution may require the signatures of both owners.

Discuss these implications with your attorney before deciding whether joint tenancy is the best way to achieve your goals.

Disclosures:

This article was written by Wells Fargo Advisors and provided courtesy of John S., Traudy F., and John J. Grande, CFPs, editors of the Money Matters column. They are owners and principals of Grande Financial Services Inc., Oakhurst, NJ, (www.grandefs.com) and registered principals of Wells Fargo and Co., member of SIPC. The Grandes advise physicians across the country on a diverse range of investment and financial matters. Readers may submit their financial questions to them at john.s.grande@wfafinet.com or call 800/722-1258.
The views expressed in the Money Matters column are the views of Grande Financial Services, and should not be considered as investment advice. Grande Financial Services does not provide tax or legal advice. All information is believed to be from reliable sources; however, Grande Financial Services make no representation as to its completeness or accuracy. Past performance does not guarantee future results. Investing involves risk including the potential loss of principal.
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