A power of attorney is a legal document that authorizes another person to handle your affairs on your behalf. This person is called your agent or attorney-in-fact. A general power of attorney is broad and provides extensive powers to your agent including the power to act in financial and legal matters. A special power of attorney allows you to give only specific powers to your agent. Depending on your situation, you may want the power of attorney to take effect immediately, or you may want it to take effect when you become unable to handle your finances yourself. All powers of attorney, however, expire when the person who signed it dies; the agent loses authority at that point.
Probate is the court procedure used to settle your estate after your death. Procedures vary according to state law and can range from the relatively simple to lengthy and intensive. In general, the process begins soon after the person dies by filing an application with the appropriate court. If there is a will, the court determines if it is valid and appoints an executor to gather the assets of the estate, pay the bills and distribute the estate to the beneficiaries. If there is no will, the court appoints an administrator to perform similar functions except that this person also must determine the proper heirs.
Until the court appoints an executor or administrator, no one has authority to pay the estate's debts. Once that person has been appointed, the executor gathers the assets and pays any just and reasonable bills and taxes owed by the estate. If there is not enough money to pay all of the bills and taxes, the executor pays them in order of preference beginning with compensation for the personal representative and lawyer, funeral and burial expenses, federal taxes and expenses of the last illness. Lower-priority bills include child support arrearages, or unpaid child support payments, debts acquired after death and all other claims.
Payments by Agent
Since all powers of attorney end when the person granting the powers dies, your agent does not have authority to pay bills after your death. However, this type of situation can occur in the confusion of dealing with a loved one's death, especially if your agent is also your spouse or close relative. And, since a bank is not required to accept a check written by your agent after your death, the situation will probably be limited to the first day or two after death. On occasion, however, an agent might try to commit fraud on the estate by writing checks to himself or to false creditors.
Typically, the executor opens a new account in the name of the estate, transfers money from your personal accounts into it and writes checks to pay bills and taxes owed by the estate. Later, he prepares an accounting of the value of the assets and the amounts he paid to creditors and taxing agencies. If your agent pays bills from your personal accounts before probate begins, the accounting will be inaccurate because the money available to the estate will be less than it was at the time of death. In situations where the agent, for example, paid the funeral expenses with a check from your personal account, the executor should be notified so he can include that information in the accounting with the permission of the judge. If, on the other hand, the agent paid someone else's credit card bill from the funds in your checking account after your death prior to probate, the judge might require him to reimburse the estate or might turn the matter over to the police for investigation.