The Transition from Power of Attorney to Executor

In December, our client, Joyce, passed away quietly in her sleep. She'd had the beginning of Alzheimer's Disease, but was still able to discuss bills and sign checks. Her sister, who lives in another state, was her power of attorney and helped to make the broader decisions about bringing in home care, hiring us, and meeting with an Elder Law Attorney to do long-term planning. Joyce was the only one who had signatory power on her checking account.

When Joyce died, the sister was surprised to learn that her role as Power of Attorney (POA) died with the death of her sister. Joyce was thinking ahead and named Elaine as the executor of her estate, but Elaine found that she did not have the authority to access Joyce's checking account to pay Joyce's bills. Elaine made a few payments out of her own funds, but the rest of the bills accumulated as Elaine waited until she was officially appointed to be the executor and could create a bank account in the name of Joyce's estate. 

Harry, on the other hand, could have presented even more of a problem than Joyce. He lived six months of the year in New York and six months of the year in Arizona, thereby having bills and obligations in both states. When he created his POA, he appointed two people to be his agents and gave each of them the power to act independently: one of the agents lived in Arizona and the other agent lived in New York. After a prolonged illness, Harry passed away in Arizona. As with Joyce, the POA was no longer effective. However, fortunately, Harry also made his New York agent a co-signer on his New York bank account so that both Harry and his New York agent could write checks on Harry's New York checking account. This made for a smooth transition because the New York agent was able to pay Harry's bills out of the checking account before an estate account was created.

Most of you know the difference between a POA and executor, but you may find yourself having to explain to family and friends. In order to avoid Joyce's dilemma, we recommend discussing with an attorney the alternatives available to allow a smooth transition.

Three techniques that we have seen clients use are:

  • Creating a Joint Bank Account: adding another person to a checking account by going into the bank and filling out an additional signatory card. (The bank may require that an entirely new checking account be created.) The senior should choose a person to be joint signatory on the account only if they have a great deal of trust in the person; because both individuals can write checks, the bank will not stop the joint account holder from withdrawing all the funds from the account. Even so, these "convenience accounts" are of great benefit because, unlike an agent with power of attorney whose power dies when the senior dies, the joint account holder does not lose his authority when the senior dies. The second signer continues to be able to access the account to take care of unpaid credit card bills, funeral costs, and housing expenses. (Joint accounts are not good for Medicaid planning and the account holders' taxes can be impacted by the addition of their name to the senior's account.)
  • Creating a Revocable Trust: the senior can create a "revocable" trust into which some or all of his/her assets can be transferred or deposited. The trust takes effect while the senior is living and is managed by the senior and another individual that the senior selects to be a second trustee. By creating a revocable trust the senior can maintain a sense of independence, pay bills and make monetary decisions. When the senior is no longer able to manage his/her assets because of illness, lack of interest, or death, the second trustee can take over these responsibilities. If investment accounts and other assets are included in the trust, the senior's checking account can be replenished by the trustee. (Revocable trusts are not of benefit in Medicaid planning and may also have multiple tax implications.)
  • Creating an Irrevocable Trust: the senior can create an "irrevocable trust" to hold her/his assets and appoint one or more individuals, other than the senior, to be the trustee(s). The senior decides which assets will be transferred or deposited into the trust, but the senior must give up control of these assets to the trustee(s) who have a "fiduciary" responsibility to manage and use trust assets in accordance with the instructions set forth in the trust document. A trustee can be given the authority to use trust funds to pay the senior's expenses while the senior is alive and continue to do so after the senior's death. (This has been used frequently as part of Medicaid Planning and may also have multiple tax implications.)

It is worth taking the time now to work with your senior to make sure that there is a way to access funds immediately after the senior's death. Each of these mechanisms has its place and can be very effective in the right circumstances. A lawyer should always be consulted. If you need assistance navigating through the process, Eddy & Schein can help the senior and provide support to the attorney(s) and financial advisor(s) involved.

Thank you to Mira Weiss, Esq. for reading and making editorial suggestions.

August 2012-FEATURE
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