Appointing the Right Fiduciaries for your Estate Plan

What is a Fiduciary?

A fiduciary is an individual or entity that acts on behalf of another person. Although a fiduciary relationship can be created in a professional or personal context during life (i.e. financial advisor, health care proxy, power of attorney, etc.), this post will focus on the fiduciaries who are appointed to handle your affairs after your death: executors, trustees, and guardians for minor children.

Executor:

The executor (or “personal representative” in some states) is the individual who you appoint in your will to handle your affairs after death. The executor’s primary role is to carry out your wishes. To accomplish this, the executor will need to submit paperwork to the court, marshal assets, pay creditors, and ultimately make distributions to the beneficiaries of the estate. The executor may be a beneficiary of the estate, but must act in accordance with the instructions specified in your will. The executor may retain legal counsel to help with the process and is entitled to a commission. It is important to name an executor who is familiar with both your family and your assets so that the probate process goes smoothly and nothing is missed.

Trustee:

A trustee is similar to an executor but is only responsible for the property owned by the trust. The trustee has similar duties and will need to perform similar tasks as an executor, but their scope is usually more limited. Unlike most estates, trusts often remain in place for many years and own property that can grow in value. Therefore, it is helpful to name a trustee who has a business background and is a prudent investor.

Guardian:

We don’t like to talk about tragedy, but it is important to provide for minor children in the unlikely event you pass away at a young age. If the other parent of your child is living, he or she will automatically retain full guardianship rights. However, if the other parent has predeceased you or if both parents die at the same time, the court will step in to determine who will be appointed guardian of the children.

As a general rule, the court will appoint the individuals named as guardians in your will. Therefore, it is critical that your attorney include a guardianship provision in your will. Naming guardians ensures that you determine who cares for your children, not a third party. If you do not name guardians in your will or do not have a will at all, matters could become more complicated.

Surviving family members do not always agree on who will take care of the children. Disputes often arise between the family of the mother and the family of the father. You can help avoid these issues and reduce the strain on your children by designating your preferred choice(s) in your will.

Practical Tips:

1. Pick people who are capable and trustworthy.
   Your children and your assets must be safeguarded after your death. You work too hard and make too many sacrifices to permit your savings, home, or keepsakes to be squandered.
   
   Select individuals who you trust without any reservations. Spouses or adult children who are the beneficiaries of your estate are typically good options. Although most of our clients choose family members, sometimes it’s prudent to name a close friend or advisor instead. It all depends on your personal situation.
   
   However, while someone may be trustworthy, they may not be capable of doing the job. Name fiduciaries who are dependable, shrewd, and organized. A good fiduciary will keep accurate records and hire the right people (i.e. attorneys and accountants) to do the tasks that the fiduciary is unable to do. The fiduciary will need to be able to communicate with professionals and family members, often through email.
    
2. Don’t appoint multiple people for one role.
   If possible, we advise appointing one individual to serve as a fiduciary at any given time. When two or more people serve as co-fiduciaries, the decision-making process slows down and conflicts arise between the co-fiduciaries.
    
3. Name a successor.
   You may name a successor fiduciary who will serve in the event that your first choice is unable or unwilling to do so. By naming a successor, you decide who is in charge of your finances, children, and estate. Don’t leave the decision up to a judge who does not know you.  
    
4. Communicate your choices to your family.
   Many of our clients are concerned that naming one family member as an executor or trustee will offend other family members. Clients who elect to appoint a non-family member may experience similar concerns. Moreover, family members of deceased clients often complain that they were unprepared to be thrust into the role without warning.

To avoid “drama”, discuss your wishes with your family members—those who you appoint as fiduciaries and those who you don’t. Explain why you made certain choices. Communicating openly eliminates surprises and gives family members a chance to ask questions. This also gives your nominees an opportunity to tell you if they are uncomfortable serving in the role. Ultimately, it’s one less thing for your family to stress about when you become ill or pass away.

In a future post, I will discuss the obligations, duties, and rights of the various fiduciaries and provide some tips on what to do if you are appointed to serve as an executor or trustee.