What is the Difference between acting as a Power of Attorney and acting as a Personal Representative in the Estate Planning Process?
When it comes to legal matters involving estate management, two roles often get confused: Powers of Attorney and Personal Representatives. While they both involve authority over someone’s affairs, they serve distinct purposes and operate under different circumstances. Understanding these differences is essential for effective estate planning and administration.
Power of Attorney or POA:
A Power of Attorney is a legal document that grants someone else (your “Agent”) the authority to act on your behalf in financial, legal, or medical matters while you are living. This authority can be broad or limited, depending on your wishes when granting the power. There are different types of POAs, including:
- General Power of Attorney: This is sometimes called a “Financial Power of Attorney” or “Statutory Form Power of Attorney.” A General or Financial Power of Attorney grants broad authority to the Agent to handle various personal financial and legal matters on behalf of the individual. It is generally used in situations where you need, or want, someone to manage your affairs, such as during a period of illness, travel, or old age.
- Health Care Power of Attorney: A Health Care Power of Attorney grants broad authority to the designated person to make medical decisions on behalf of the individual when that individual in unable to communicate decisions themselves or no longer has capacity to make medical decisions themselves.
- Limited or Special Power of Attorney: A Limited or Special Power of Attorney grants specific powers to the Agent for a particular purpose or within a defined timeframe. For example, a limited POA might authorize someone to sell a specific property on your behalf, or might authorize the Agent to act for you because you are travelling out of the country. However, this appointed POA would not have authority to manage any other affairs on your behalf, even if they were similar in scope.
The above-described power of attorneys can be durable or springing:
Durable Power of Attorney: In Montana, a POA is effective upon signing, and remains effective even if the principal becomes incapacitated, unless the POA specifically says otherwise. It is often used to plan for potential incapacity due to illness or old age.
Springing Power of Attorney: A springing POA only becomes effective upon the occurrence of a future event or contingency you describe in the POA, such as a determination that you are incapacitated, or if you are hospitalized.
Personal Representative, Executor, or Administrator:
A Personal Representative (PR), Executor or Administrator are all generally interchangeable terms. This person is appointed to manage your estate at your death. This role involves various responsibilities, including gathering, safeguarding, and managing your assets, paying debts and taxes, and distributing the remaining assets to the beneficiaries according to the terms of the will or the laws of intestate succession if there is no will. (Intestate succession is the legal process that distributes property when someone dies without a will. This legal process is state-specific, so may be different depending on where the person dies.)
The PR may need to represent the estate in legal proceedings, like probate court hearings, to ensure that the deceased person’s wishes are carried out and that the estate is administered properly.
Agents and PRs are both fiduciaries and entitled to reasonable compensation:
Fiduciaries: Agents under a POA and Personal Representatives of an estate are considered fiduciaries and must act in your best interests (as Agent) or in the best interests of the estate and estate beneficiaries (as PR).
Compensation: Agents under a POA and Personal Representatives of an estate are entitled to reasonable compensation for their work as Agent or PR, as well as reimbursement for your expenses they personally covered out of their pocket.
The Key Differences between a POA and a PR:
- Scope of Authority: A Power of Attorney grants authority to act on behalf of the individual while they are alive, whereas the PR manages the affairs of the deceased individual’s estate.
- Duration: A Power of Attorney can be temporary or permanent, depending on the type and terms of the document, while a PR’s role typically ends once the estate administration is complete.
- Purpose: A Power of Attorney is often used for incapacity planning or to facilitate decision making during the individual’s lifetime, while a PR is appointed to handle the affairs of a deceased individual’s estate after their death.
In summary, whether serving in the role of POA or as a PR, the individual in this role has a fiduciary responsibility to act in the best interests of the principal of the estate. Any compensation they receive should be reasonable and should be documented and transparent to avoid disputes among family members and/or beneficiaries of the principal and the estate.
Contact one of Worden Thane’s estate planning attorneys for more information, and to ensure you have properly designated an Agent to act on your behalf and PR to manage your estate.