A common question that we receive from clients is: “How do the Financial Agent, Executor, and Trustee work together and what does each control?” Each of these roles have very specific scopes and may cover very different wishes and assets, so it’s important to break down each role individually to understand how they work together to carry out your wishes in your estate plan.
The financial agent is someone who acts for you during your lifetime. The agent’s authority terminates when the principal (You) passes away. In the event that you become incapacitated, the financial agent will act on your behalf to take care of your financial, contractual and managerial affairs while you are unable to. This power and authority can be effective immediately, especially for spouses, but it is generally drafted to be effective only upon your incapacity. Having a binding and valid financial power of attorney in place will eliminate the need for the initiation of a guardianship proceeding to manage your financial affairs. The financial agent can take control and utilize all of your assets for your benefit during your incapacity, whether that be cash and deposit accounts, real property, personal property, or other forms of property that you own in your name at that time. They may also help manage a business in the event that you are unable to.
After you are gone, the Executor will take over. The executor has the right to manage all of your rights after you’re gone. Your assets and rights that you possess during your lifetime become the assets and rights of your estate after you’ve passed away. The executor that you appoint in your will is the person with the sole power and authority to manage your affairs after you’re gone for things that you owned in your name, on the date of your death, or rights and claims that you may have had on the date of your death. The executor is appointed by will and must apply to the clerk of court to be appointed via letters testamentary.
The executor does not have control over assets that are held in trust or are subject to payment on death, rights of survivorship, transfer on death or other beneficiary designations. Very common assets that may have these transfer mechanisms would be 401k, life insurance, IRA joint accounts and other beneficiary designated accounts. Those types of accounts would usually transfer or pay immediately to their designated beneficiaries and are not bound by the terms of the will or the authority of the executor. In the absence of a trust as part of your estate plan, the executor carries out most of the distributions of your non-designated (probate) assets according to the terms of your last will and testament.
When your estate plan contains a trust, the trust will likely receive the bulk of your wealth and assets and the trust’s terms will control the distribution of those assets. When a trust is part of your plan, the executor under your will has a limited role. The executor under what’s called a pour-over will is essentially going to collect whatever probate assets you have that are part of your estate and will transfer them to the trustee of your trust to be fully administered and distributed.
When a trust is part of your plan, the trustee’s role is more significant than the executor’s role. The trustee is similar to the executor in that they have an administrative function. Their role is to gather trust assets and hold, administer and distribute those assets according to the rules set out in your trust. The trustee only has authority over assets that are controlled by the terms of the trust. In order for assets to be controlled by the terms of a trust, you have to either transfer those assets into the name of the trustee during your lifetime, or make sure that those assets are transferred to the trust at your death through either the distribution provisions of your will or beneficiary designations naming the trustee, or a combination of both.
In a will-based plan, there may not be a trustee and the executor has a much more significant role in the administration and distribution of assets. Often a will may contain what is called a “testamentary trust,” which may require the executor to hold and administer assets for minor or immature beneficiaries until a certain age.
To summarize, the financial agent’s authority is only effective during your lifetime and arises by virtue of your incapacity. At your death, their authority to act on your behalf terminates. The executors role is one that arises after your death and relates only to your estate and the rights of your estate. The trustee’s role only relates to trust assets – the things that are in trust or are paying to the trust at your death. These three roles may be occupied with the same person. You may have a spouse, sibling, or friend whom are very financially capable, who you entrust and appoint to perform all of these roles, but they have very separate scopes, duties, and timelines.
Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.
Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.