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Estate planning isn’t only about deciding who gets your belongings after you’re gone. It can also determine who has the authority to handle your finances, make decisions on your behalf, or manage property held in a trust. Those decisions can become especially important if you’re unable to manage your own affairs.
Giving someone authority over your affairs requires a certain level of trust. It also helps to understand what that authority means, what responsibilities come with it, and when your estate plan may need a second look. Planning can give you more control over who steps in and what they can do.
Understanding a Power of Attorney
A Power of Attorney can be one of the most useful tools in an estate plan because it allows someone else to step in when you need assistance. Depending on the document and applicable law, the person you appoint may be able to handle financial transactions, manage property, communicate with institutions, or take other actions on your behalf.
According to the American Bar Association Estate Planning Resource, a Power of Attorney gives one or more people the authority to act on your behalf. That authority can make everyday financial matters easier to manage if you’re unavailable, traveling, ill, or otherwise unable to handle them yourself.
However, choosing an agent isn’t a decision to make casually. The person you select could have access to sensitive financial information or significant authority over your affairs. Reliability, judgment, and your level of trust in that individual should all factor into the decision.
It’s also important to understand what your particular Power of Attorney actually allows. Documents can be drafted to provide different types and levels of authority, and state laws can affect how they operate. A document that gives broad authority may have very different implications from one that limits an agent to specific tasks.
Consider what would happen if your first choice couldn’t serve. Depending on the circumstances, naming a successor agent may help prevent uncertainty if your original choice becomes unavailable.
Understanding a Trustee’s Responsibilities
Trusts can be another important part of estate planning, particularly for people who want to control how assets are managed or distributed. Unlike a Power of Attorney, which generally gives someone authority to act for another person, a trust involves assets being held and managed according to the terms of the trust.
The person responsible for managing those assets is called a trustee. A trustee may have significant responsibilities, including managing trust property, following the trust’s instructions, keeping appropriate records, and acting for the benefit of the beneficiaries.
That authority comes with legal obligations. According to the Uniform Trust Code Section 1001, a trustee breaches their fiduciary duty when they fail to act in the best interests of the trust’s beneficiaries.
Problems can arise in many ways. A trustee might fail to properly manage assets, disregard instructions in the trust, favor one beneficiary improperly, or otherwise fail to meet their obligations. The specific duties involved can depend on the trust document and applicable state law.
If you’re creating a trust, choosing the right trustee can therefore be just as important as deciding what assets to place in it. Someone who is organized, responsible, and capable of making impartial decisions may be better equipped to handle the role.
Keeping Your Estate Plan Up to Date
Creating an estate plan is a major step, but it shouldn’t necessarily be the last step. Your circumstances can change substantially over time, and an estate plan that made perfect sense several years ago may no longer reflect your wishes.
Marriage, divorce, the birth of a child, a death in the family, a move to another state, changes in financial circumstances, or the acquisition of significant property can all give you a reason to revisit your documents.
Even without a major life event, periodic reviews can help identify outdated information. Beneficiaries may have changed, the person you originally chose as an agent or trustee may no longer be appropriate, or your financial circumstances may look completely different.
According to Fidelity Investments, it’s recommended to review and update an estate plan every five years when there haven’t been major life changes such as marriage or moving to another state. Treating that five-year mark as a reminder can help keep your plan from becoming an overlooked file in a drawer.
An estate plan review can involve more than checking the date on your will. Look at your Power of Attorney, healthcare documents, trust documents, beneficiary designations, and other relevant paperwork. Make sure the people you’ve chosen still make sense and that your documents reflect your current wishes.
Estate planning ultimately allows you to decide who can step in, what responsibilities they have, and how your wishes should be carried out. Choose your decision-makers carefully, understand the authority you’re giving them, and revisit your plan before life forces you to. A plan that stays current is far more useful than one that simply sits in a drawer.
