Estate planning is more than determining how assets are distributed after death. It also provides a framework for managing and protecting an individual’s assets, and ensuring that personal and financial obligations are met if that individual becomes incapacitated during their lifetime.

In Maryland, revocable trusts and durable financial powers of attorney are two primary documents used in estate planning to accomplish these objectives. These documents designate individuals (successor trustees and agents or attorneys-in-fact) who will assume responsibility for managing financial affairs when the person who created the documents (the Grantor or Settlor of the trust, or the Principal under a financial power of attorney) can no longer manage those affairs independently.

Being named as a successor trustee or agent under a power of attorney is a significant responsibility. It involves more than simply paying bills or accessing bank accounts. These positions carry legal and fiduciary obligations under Maryland law, and failing to understand those obligations can expose the fiduciary to personal liability. Whether you have recently assumed one of these roles or are planning your own estate, understanding the responsibilities involved is essential.

A Brief Understanding of the Difference Between a Successor Trustee and an Agent Under a Power of Attorney

Although these positions frequently overlap, they serve different purposes. A successor trustee is the individual designated in a trust agreement to assume responsibility for administering the trust when the initial trustee can no longer serve. Generally, for many revocable living trusts,the Grantor initially serves as trustee and retains complete control over the trust assets during their lifetime. If the grantor becomes incapacitated, the successor trustee may assume responsibility for managing the trust assets in accordance with the trust agreement.

Similarly, an agent under a durable financial power of attorney is authorized to manage the principal’s financial and legal affairs within the authority granted by the document.  

The primary difference between the two roles is simply that a successor trustee manages assets titled in the name of the trust, while an agent under a power of attorney manages assets and financial matters owned individually by the principal or held outside the trust, to the extent authorized by the power of attorney.

It is therefore important to understand which assets are controlled by each document and to coordinate the responsibilities of the trustee and agent.

It is also important to note that the trust or power of attorney may require the successor trustee or agent to obtain the necessary medical documentation to establish incapacity when required by the trust or power of attorney. Thus, it is advisable to have an attorney to review the documents before significant financial transactions are undertaken to ensure that the fiduciary has the authority to act.

The First Steps After a Loved One Becomes Incapacitated

When a loved one becomes unable to manage their financial affairs, the successor trustee or agent should take an organized approach. The first priority is to obtain and review the estate planning documents and determine whether the necessary legal requirements for exercising authority have been satisfied. The following documents should be gathered:

Estate Planning Documents

• Revocable trust and all amendments
• Durable financial power of attorney and/or the Maryland Statutory Form Financial Power of Attorney
• Last will and testament
• Advance medical directive and healthcare power of attorney and/or living will/HIPAA authorization.
• Any separate memorandum concerning personal property or specific instructions.

 Financial Documents

• Recent bank, brokerage, and/or retirement account statements
• Investment and annuity contracts
• Life insurance policies
• Certificates of deposit
• Mortgage/loan documents
• Credit card statements
• Business ownership and partnership records

 Real Estate and Insurance Documents

• Deeds to all real estate
• Property tax bills
• Homeowners and automobile insurance policies
• Long-term care insurance policies
• Homeowners association information
• Rental agreements, if applicable

Tax and Personal Records

• At least three years of federal and Maryland income tax returns, when available
• Recent tax assessments
• Social Security and pension information
• Medicare and supplemental insurance information
• Medical bills and healthcare expense records
• Contact information for attorneys, accountants, financial advisors, and insurance agents

 Identifying, Securing, and Monitoring Assets

The next important step a fiduciary take is to identify all assets and determine how they are owned. The successor trustee should prepare an inventory of all assets belonging to the trust. The agent under the power of attorney should separately identify the principal’s individually owned assets and other property within the scope of the agent’s authority. For each asset, determine its ownership, approximate value, account access requirements, beneficiary designations, and any outstanding liabilities.

The inventory should include:

• Checking and savings accounts.
• Brokerage and investment accounts.
• Retirement accounts, including traditional and Roth IRAs.
• Employer-sponsored retirement plans.
• Certificates of deposit and money market accounts.
• Real estate, including the primary residence and vacation properties.
• Rental properties and business interests.
• Life insurance policies and annuities.
• Vehicles, jewelry, artwork, and valuable personal property.
• Digital assets and online financial accounts.

The fiduciary should also review investment accounts, monitor transactions, confirm that insurance coverage remains in effect, and ensure that assets are not being neglected or improperly transferred.

Managing Bills, Expenses, and Financial Obligations

A successor trustee or agent must ensure that the individual’s financial obligations continue to be paid. This includes establishing a system to monitor recurring expenses, due dates, and available cash flow.

A few common expenses include:

• Mortgage payments and home equity loans.
• Real estate taxes and homeowners association assessments.
• Homeowners and automobile insurance premiums.
• Utilities, including electricity, gas, water, sewer, and telephone.
• Internet, cable, and other household services.
• Credit card payments and outstanding loans.
• Medical bills, prescriptions, and healthcare expenses.
• Caregiver and home health aide expenses.
• Assisted living or nursing home expenses.
• Property maintenance and landscaping.
• Federal and Maryland income taxes.

The fiduciary should review bank statements and establish a schedule for recurring payments. Automatic payments can be useful, but they should be monitored to identify unusual charges, duplicate payments, or services that are no longer needed.

It is also important to maintain adequate liquidity to cover foreseeable expenses, particularly if the individual requires ongoing medical care or long-term residential assistance.

The fiduciary must pay particular attention to the ownership of the accounts from which expenses are paid. Trust expenses should be paid from appropriate trust accounts, while individually owned expenses may be paid from accounts over which the agent has authority. All transactions should be documented.

Maintaining the Home and Protecting Personal Property

When an individual becomes incapacitated, their residence and personal property may require additional attention, particularly if they are no longer able to live independently. The fiduciary should establish a plan to maintain the property and prevent unnecessary deterioration or financial loss.

Responsibilities may include:

• Arranging regular inspections of the residence.
• Maintaining lawn care, landscaping, and snow removal.
• Ensuring that heating, air conditioning, plumbing, and electrical systems remain operational.
• Addressing necessary repairs.
• Maintaining homeowners insurance and reviewing vacancy provisions.
• Securing the property and monitoring mail.
• Arranging for pet care.
• Maintaining vehicles and automobile insurance.
• Protecting jewelry, artwork, collectibles, and other valuables.

If the residence is unoccupied, the fiduciary should contact the insurance company to determine whether the change in occupancy affects coverage. The fiduciary should also consider whether the property should be retained, rented, or sold. Such decisions should be based on the individual’s financial circumstances, anticipated care needs, estate planning objectives, and known wishes. A residence should not be sold simply because the individual has moved into an assisted living facility or nursing home. The decision requires careful consideration of the individual’s long-term financial needs and applicable legal authority.

Best Fiduciary Practices to Protect Your Loved Ones

Both successor trustees and agents under powers of attorney have legal duties to the individuals whose affairs they manage. Some of the fiduciary requirements for a successor trustee include:

• Duty of loyalty: A trustee must administer the trust solely in the interests of the beneficiaries (the Grantor being the primary beneficiary during their lifetime). Transactions involving personal conflicts of interest may be subject to challenge.
• Duty to maintain records: A trustee must maintain adequate records and keep trust property separate from the trustee’s personal property.
• Duty to protect trust assets: The trustee must take reasonable steps to protect and preserve trust property and properly manage trust affairs.
• Information and reporting obligations: Trustees have specified obligations to provide information and reports to qualified beneficiaries upon certain events or upon request. Importantly, Maryland law generally requires a trustee to notify qualified beneficiaries of acceptance of a trusteeship within 60 days. The statute also establishes additional notice and reporting requirements when a trust becomes irrevocable. The precise reporting obligations depend on the status of the trust, the beneficiaries, and the circumstances of the administration.

Some of the fiduciary duties of an Agent under a financial Power of Attorney include that the agent must:

• Act in accordance with the principal’s reasonable expectations, to the extent known, and otherwise in the principal’s best interests.
• Exercise care, competence, and diligence.
• Act only within the authority granted by the power of attorney.
• Act loyally for the principal’s benefit.
• Avoid conflicts of interest that impair the agent’s ability to act in the principal’s best interests.
• Maintain records of all receipts, disbursements, and transactions.
• Cooperate with the individual authorized to make healthcare decisions for the principal.
• Attempt to preserve the principal’s estate plan when consistent with the principal’s best interests. The obligation to preserve the estate plan is particularly important. An agent should not assume that the power of attorney authorizes gifts, transfers to family members, changes to beneficiary designations, or other estate planning transactions.

Take Away for Fiduciaries

Serving as a successor trustee or agent under a power of attorney is an important responsibility that requires diligence, organization, and an understanding of Maryland law.

When a loved one becomes incapacitated, the fiduciary must take steps to protect assets, maintain financial stability, pay necessary expenses, preserve property, and ensure that the individual’s needs continue to be met. Just as importantly, the fiduciary must understand the legal authority granted under the estate planning documents and comply with the applicable fiduciary obligations.

For individuals planning their own estates, selecting the right fiduciaries and providing them with properly drafted documents can make an enormous difference in avoiding unnecessary complications and family disputes.

Whether you are preparing for the future or have recently assumed responsibility for managing a loved one’s affairs, you should understand your legal obligations, protect assets, and navigate the challenges associated with incapacity planning and administration.