Why Does a Power of Attorney Not Transfer to a Trustee?

By Andrine Redsteer

A power of attorney and a trust document are similar in that they both convey to an individual the authority to manage financial affairs on behalf of another person. Beyond that similarity, these two legal documents serve different purposes. Most notably, a power of attorney ends upon the death of the grantor, or "principal," while the powers granted in a trust document may continue well after the trustor passes way.

Power of Attorney

A power of attorney gives an agent appointed by the grantor the authority to make financial decisions and transactions on the principal's behalf. This authority may be broad or limited. For example, a power of attorney may give the agent wide latitude, such as the power to sell real estate and to buy or sell stock; or the agent may be given very limited power, such as the ability to make a mortgage payment or pay other bills. A power of attorney may be revoked by the principal at any time. If the power of attorney is “durable,” it may continue in the event that the grantor becomes incapacitated, but it terminates upon the grantor's death.

Trust

Trust documents convey different powers and they're used for different purposes than a power of attorney. A trust requires certain elements: a trustee, trust property and one or more beneficiaries. A trust may be irrevocable or revocable. An irrevocable trust cannot be changed or revised, whereas the terms of a revocable trust can be changed by the grantor at any time. Unlike a power of attorney, which terminates when the grantor dies, a trust may extend beyond the trustor's death and often requires the trustee to distribute assets to the estate's beneficiaries.

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Agent Vs. Trustee

An agent given limited authority under a power of attorney has different powers than a trustee. The agent is not empowered to make distributions to beneficiaries or to manage trust assets after the principal dies – that is the trustee's function. Thus, the two roles are distinct. Although a power of attorney may give an agent the power to buy and sell stock on the grantor's behalf, the agent does not have a duty to manage assets for the benefit of the estate's beneficiaries.

Transfer of Powers

The authority granted under a power of attorney does not transfer to the trustee because it expires when the grantor dies. The trust administrator assumes control over the estate at that time. Thus, the agent and trustee have distinctly different powers and fulfill two different but equally important roles.

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What Is a Power of Attorney for a Trust?
 

References

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