Can My Lifetime Fiduciary Pay My Final Bills?
A fiduciary is someone who acts for another pursuant to legal authority to do so.
A fiduciary can act for a living individual. The most common sources of legal authority for a fiduciary to act for a living individual are: a power of attorney, a guardianship, and a trust.
But when that living individual dies, the fiduciary’s legal authority dies, too. At that point, a new source of legal authority – whether an estate or trust – dictates who the fiduciary is, what his/her duties are, and to whom he/she owes the duties.
Many don’t understand this. A child serving as agent under a financial power of attorney might believe his/her authority continues after his/her parent’s death to pay final bills. A guardian might believe the same thing. Not so.
A recent opinion from the Court of Chancery of the State of Delaware explains this distinction in the guardianship context and is discussed below. We also show below how the same principles apply to financial powers of attorney and how revocable living trusts provide a built-in solution for the “death” dividing line providing for easier post-mortem administration.
- Guardianship.
In In the Matter of P.M., C.M. # 19860-K (Del. Ch. January 31, 2024), the Delaware Chancery Court confirmed existing law that a guardian cannot use guardianship funds to pay the final expenses of the person with a disability who was subject to the guardianship. While this result might surprise some, it is the result of the interplay of Delaware’s guardianship and estate statutes and the sources of each type of fiduciary’s authority to act.
In this matter, co-guardians of the person and property of P.M. filed a petition, after P.M.’s death, to expend guardianship funds to pay for P.M.’s burial expenses, the family luncheon after P.M.’s burial, and a wheelchair pad replacement purchased for P.M. Magistrate in Chancery Selena E. Molina denied the petition, explaining that as recognized by Chancellor Seitz in In re Bohnstedt, 125 A.2d 580, 582 (Del. Ch. 1956), “a guardian appointed by this Court derives their power to act from the living person with a disability; thus, after the death of the [person with a disability] the [guardian], absent statutory authority, has no power to pay existing obligations. The creditors must file their claims in the estate proceedings.” (internal quotations omitted). Id. at 2.
The Court explained that, as recognized most recently by Vice Chancellor Zurn in In re A.N., 2020 WL 7040079, at *11 (Del. Ch. Nov. 30, 2020), “Delaware’s statutory scheme provides no such post-death, pre-estate power for guardians to pay the person with a disability’s unpaid debts and liabilities; the guardian’s responsibilities after death and before termination of the guardianship action are limited to (1) being candid with and responsive to the Court as it works to close the guardianship action, (2) safeguarding the late person with a disability’s assets for transfer to their estate, and (3) accounting for the guardian’s remaining unaccounted for pre-death service.” Id. at 2-3.
The Court denied the petition to expend for final bills. A creditor would have the right to file a claim against the person with disability’s estate for unpaid debts or expenses. The Court ordered the co-guardians to file a petition with the Register of Wills to open the decedent’s estate and, within thirty days, file with the Court a petition to terminate and the final accounting for the period concluding on the date of death of the person with a disability. Id. at 3.
- Durable Personal Power of Attorney.
A Delaware Durable Personal Power of Attorney terminates when the principal dies. 12 Del. C. § 49A-110(a)(1). Likewise, the agent’s authority terminates when the personal power of attorney terminates. 12 Del. C. § 49A-110(b)(4).
Therefore, as in the guardianship context, upon the death of the principal: (1) the agent appointed by the personal power of attorney lacks authority under that document to pay final expenses, and (2) Delaware’s post-mortem statutory scheme applies: if the assets of the deceased individual require the opening of a probate estate as determined by statute and court rule, the proposed personal representative must file a petition with the Register of Wills to open an estate, be appointed personal representative, and then complete the probate process under Title 12 of the Delaware Code and Court of Chancery Rules Subpart XIX.
- Revocable Living Trust.
Revocable Living Trusts resolve the “death” dividing line. In the trust agreement, the trustmaker appoints one or more trustees to serve at each of the relevant times: upon initial trust creation, upon the trustmaker’s incapacity, and upon the trustmaker’s death. Usually the trustmaker is his/her own trustee initially, and names a different or co-trustee to serve upon incapacity, and then upon death, of the trustmaker. Assets properly titled in trust name before the trustmaker’s death are part of the trust after the trustmaker’s death and do not pass through probate. The successor trustee to serve upon death of the trustmaker takes office via the terms of the trust agreement which is his/her source of legal authority. The transition is smooth and requires no court involvement. Final bills are paid with trust assets by that successor trustee.
Conclusion.
Revocable living trusts are known for providing ease of post-mortem administration. Many probably think of that benefit mainly in terms of distributing the trust estate to the beneficiaries. But in the short term, long before the beneficiaries are to receive their distributions, the final bills must be ascertained and paid, assets marshaled, and the trust estate wound up. This includes selling the home, determining assets and balances, etc. The trust becomes an administrative trust for the purpose of winding up and receives its own Employer Identification Number, and a Certification of Trust is issued to the successor trustee as authority to act. Post-mortem tasks are significantly easier to complete as trustee of a trust, rather than as personal representative of a probate estate.