'There is a lot of legal and financial power in my hands'

"When someone wears several hats, it can be surprisingly difficult to know which hat applies when." (Photo subject is a model.)<

Dear Quentin,

I wear multiple hats for my 93-year-old mother-in-law, who has dementia. I am her financial power of attorney (her son is her medical power of attorney). I am also co-trustee of her trust, and will be the executor of her estate.

I have read in your column that my authority to act as her power of attorney ends upon her death. However, as co-trustee of her trust, my name is on her checking and savings accounts, as well as her brokerage account, all of which the trust owns.

Question #1: My understanding is that, because I am acting as co-trustee rather than as her power of attorney, I should continue to have access to those trust-owned accounts after her death, without the financial institutions automatically freezing or restricting them. Is that correct?

Question #2: My authority as power of attorney ends at her death, so I would no longer be able to access or manage these accounts in that capacity. However, as executor, is it my responsibility to notify the financial institutions of her death and provide documentation?

Question #3: She has three accounts that are not part of the trust: two IRAs and a small life-insurance account established when my father-in-law died years ago. Each account has designated beneficiaries, and those beneficiaries are aware that I hold her power of attorney.

There are five beneficiaries, all of whom are her grandchildren. As executor, am I responsible for dividing and retitling the IRAs among the five beneficiaries, or is that handled by the financial institution and/or the beneficiaries themselves?

Thank you for helping me understand the responsibilities and rights associated with each of these roles. There is a lot of legal and financial power in my hands. When someone wears several hats, it can be surprisingly difficult to know which hat applies, and when.

Do I have too much power over her affairs?

POA, Trustee & Executor

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You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.

Remember, having power of attorney for her does not obligate you to act as executor.

Dear POA,

Whether or not you have too much power is subjective because it comes with a lot of responsibility and legal peril as a fiduciary. You have a strict legal duty to act solely in the best interests of the person who granted this power, your mother-in-law.

I will answer your questions in the order you asked them.

Answer #1: It depends on what the trust says. Upon your mother-in-law's death, the trust generally becomes irrevocable, and you must abide by its terms. As co-trustee, you may continue to have access to and authority over accounts owned by the trust. It may be that both trustees have to sign off on certain decisions.

Remember, having power of attorney for your mother-in-law does not obligate you to act as executor. The authority granted by a power of attorney generally ends when the principal dies, as you say. Only a court-appointed executor or administrator generally has the authority to act on behalf of the probate estate.

There may be financial incentives, however. Depending on the state, an executor may be entitled to a statutory fee or reasonable compensation. In this case, there may not be much left after all the bills, taxes and other expenses are paid. The trustee's authority applies to trust assets.

You've taken on a lot of responsibility for your mother-in-law, both legal and financial. Holding a financial power of attorney gives you authority to access and manage her accounts while she is alive, but it also makes you a fiduciary. You must act in her best interests and avoid self-dealing.

Answer #2: Speaking of the executor, yes, it is generally your duty to notify the bank or other financial institutions of your mother-in-law's death and provide the death certificate and other legal documents they require. An executor also has a fiduciary duty to act in the estate's best interests.

In addition to providing a death certificate, you may have to prepare an inventory of the assets and account for income, expenses, sales, distributions and other transactions. There may also be tax and other reporting obligations. It's a lot of work.

These roles come with significant legal responsibilities and potential liability. If you were found to have acted recklessly with her money or investments, engaged in self-dealing, or otherwise misused estate or trust assets, you could face serious legal consequences.

If you are in doubt about the extent of your various roles, now or after your mother-in-law dies, it is smart to consult the estate attorney before taking action, especially before selling, distributing or transferring significant assets.

Answer #3: Usually, it's the job of the financial institution to handle the transfer or retitling of an IRA. Your role is generally to notify the institution of your mother-in-law's death and provide the documentation it requires. You may also need to coordinate with the named beneficiaries.

If there is a valid beneficiary designation, the IRA will generally pass to the beneficiaries outside of probate, so you would not retitle it as an estate asset. Instead, the beneficiaries typically work directly with the IRA custodian, which transfers their respective shares into inherited IRAs or otherwise distributes the assets according to the applicable rules.

Your mother-in-law will already have begun taking her required minimum distributions, so her non-spouse beneficiaries generally will be subject to annual distribution requirements during the 10-year period following her death, with the entire account generally required to be distributed by the end of the 10th year.

For an IRA owner who dies before reaching the point at which RMDs are required, the rules are usually different. In that case, beneficiaries may generally use the 10-year rule, take distributions under another applicable method, or take a lump-sum distribution. The latter could result in a significant tax liability for your mother-in-law's five grandchildren.

You have a lot of work already done - and a lot of work ahead of you.

Related: My mother regrets paying Social Security. She says she should have invested her contributions. I disagree. Who's right?

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-Quentin Fottrell