What's the Difference Between an Executor and Power of Attorney?

Graphic of an executor and power of attorney agent

An agent acting under a power of attorney and an executor acting under a will are two very different roles.

The most significant difference between an agent acting under a power of attorney and an executor is that the power of attorney is effective only when the principal, the person who created the power of attorney, is alive. An executor serves only after the Willmaker has died.

Beyond the core difference of when the agent or executor can act, the scope and nature of their work also differs.

Difference at a Glance

Financial Power of Attorney and Limited Pet Power of Attorney Comparison
Power of Attorney Executor
Acts During Your Lifetime Yes No
Acts After Your Death No Yes
Fiduciary Duty Yes Yes
Can have broad or limited powers Yes Yes
Primary Financial Focus Act in "best interests" Preserve estate assets
Ability to Distribute Gifts Sometimes Yes

Fiduciary Responsibility

An agent acting under a financial power of attorney and an executor are fiduciaries. This means that they have a responsibility to act in the best interest of the people they serve.

An agent acting under a power of attorney is responsible for acting in the best interest of the Principal, the person who creates the power of attorney.

An executor is responsible for acting in the best interest of the Willmaker, the beneficiaries, the estate creditors, and anyone else who has an interest in the estate. The executor must carefully balance these interests, which at times may be at odds with one another.

Broad vs. Limited Powers

You can decide to provide your agent or executor with broad or limited powers. But which to choose? If you’re not careful, you could end up granting someone more power than you intended – or not enough.

Provided that you trust your agent, most estate planning attorneys recommend providing your ‘core’ agent with general authority over the most common subjects. This recommendation owes to the fact that many financial transactions involve dealing with multiple subjects simultaneously, some of which are not readily apparent. For similar reasons, in most cases you’ll want to empower your executor with broad authority in your last will so that he or she can safely follow your instructions.

On the other hand, if you want to give your agent power to act only on one or a few transactions and for a limited time, you may consider creating a limited power of attorney instead. For example, you might grant an accountant only those powers necessary to submit your tax return and deal with the IRS on your behalf. Or you might grant your lawyer power of attorney with real estate and banking transactions in order to help you close on the purchase of your new home.

Therefore, when deciding to grant your agent general or limited powers, you should think carefully about what you want that agent to do for you.

Managing Finances

When it comes to managing finances, an agent acting under a power of attorney typically has a broader investment mandate than an executor. That’s because the primary financial responsibility of the executor is to preserve (and not necessarily grow) estate assets for distribution to the people or entities who have an interest in the estate, such as beneficiaries or creditors.

If you’re serving as an executor and decide to ignore this conventional wisdom in pursuit of a more aggressive investment strategy, you could be held financially liable to the estate creditors and beneficiaries. At a minimum, you should keep a cash cushion or money market funds covering at least 125% of the anticipated estate expenses, debts, and taxes. You should also clearly communicate this strategy with the beneficiaries and obtain waivers and consents.

Ability to Make Gifts

If you are creating a power of attorney at the same time that you create your last will, you may be asked if you want to provide your agent the power to make gifts on your behalf. This can be confusing. Isn’t that what you just did in your last will?

The ability to make gifts in a financial power of attorney is a special power requiring explicit consent. It’s different than the gift making power that you’re providing your executor for a few reasons:

  • Gifting power in a power of attorney is effective only during your lifetime (when the power of attorney is effective)
  • Gifts made under a power of attorney may be subject to gift tax
  • Gifts authorized by a power of attorney are often less well defined than in a last will. For example, you might grant your agent authority to donate to charities and causes consistent with how you’ve supported such groups in the past. This is a little more open-ended than a last will, which typically would be a gift to a specific charity for a specific amount or percentage of your assets.

Should You Create a Power of Attorney or a Last Will?

Every adult should create a last will, whether that is a standalone last will or a pour over will as part of a revocable living trust or other estate plan.

In addition to your last will, many estate planning attorneys recommend creating a power of attorney as one of three essential estate planning documents in a comprehensive estate planning strategy.

Whereas the last will dictates what happens after you pass away, the power of attorney governs during your life and can be a great tool if you need help managing your financial affairs now or in the event that you later become unable to do so.

When you create your last will with Just In Case Estates, you have the option to create a power of attorney for free.


Legal

Just In Case Estates is an online service providing legal forms and information. We are not a law firm and we do not provide legal advice. If you need legal advice, please use our legal expert matching service to connect with a qualified, licensed estate planning attorney near you.