Choosing the right fiduciary is an essential part of creating a comprehensive estate plan, but a hard decision to make. A fiduciary is a person or entity entrusted with managing your assets and making decisions on your behalf when you are unable to do so. This could include an executor, trustee, agent acting under a power of attorney, or guardian.
Definitions of key terms
- Executor
- Also called a “personal representative,” an executor is an individual who is appointed to manage the affairs of a deceased person’s estate. This person is responsible for ensuring that the decedent’s wishes are carried out according to the terms of their will, or in the absence of a will, according to the applicable state laws.
- Trustee
- The person or company named to legally hold title to all property held in a trust. The Trustee is responsible for managing the trust assets and for making distributions to its beneficiaries.
- Agent Under Power of Attorney
- A power of attorney is a document that names an “Agent” to handle another person’s affairs. These affairs include finances (including bank accounts, bills, and investments) and healthcare.
- Guardian
- A guardian is a legal representative appointed by a court to make personal, financial, and medical decisions for a minor child or incapacitated adult.
Why is this decision important?
Choosing proper fiduciaries is an important decision because they will have significant responsibility for managing and distributing assets according to your wishes. It’s also a good idea to discuss your decision with the potential fiduciary to ensure that they are comfortable taking on the responsibility and understand your wishes.
Considerations for selecting a fiduciary
As you contemplate who might serve in these various roles, try to avoid relying on a choice of your oldest child, your confidante, or your favorite sibling. Keep in mind the qualities that will help your fiduciary be a successful part of your estate plan.
Expertise
An executor, trustee or financial agent should be able to competently manage financial affairs, including investments, taxes, and estate planning. They don’t have to be able to do everything on their own. But, they need to know when to ask for help and when to delegate to a professional advisor.
Objectivity
An executor, trustee or financial agent should be able to be objective in their decision-making and try to avoid being swayed by personal biases or conflicts of interest. It is important for the fiduciary to be able to step outside of their habits or common practices and adhere to legal standards of discretion for the benefit of your beneficiaries. This is also important to consider for a healthcare agent who will make care and end-of-life decisions.
Accountability
All fiduciaries are typically required to follow strict legal and ethical standards, to act in good faith and solely in the interest of beneficiaries. This can create conflict and even litigation between a beneficiary with high expectations or significant needs and wants and a fiduciary who fails to follow processes or keep records. It is important that the fiduciary be organized and methodical and to accept that they are accountable under the law to beneficiaries.
Continuity
Consider the age and health of each potential fiduciary, as you want to choose someone who is likely to be able to fulfill their duties for many years to come. You may also want to consider one or more successor fiduciaries.
Personal Relationships & Commitment
Any fiduciary should be available and willing to take on the responsibility of managing your assets or healthcare needs, which may involve a significant time commitment. It’s OK if your chosen fiduciary lives out-of-state, as long as they are able to manage matters from afar. Any fiduciary should be someone you trust to manage your assets responsibly and in accordance with your wishes but also work with your beneficiaries in an empathetic manner.
Cost
Serving as a fiduciary is a lot of work and can even be a burden. You should consider whether your choice would expect or would refuse a fee for their service and how you feel about that.
Should you consider a professional fiduciary?
You may also consider appointing a professional fiduciary, such as a bank or trust company, which can provide expertise and experience in managing assets and administering trusts and estates. While there are some potential advantages to selecting a professional fiduciary to serve in this role, there are also some potential drawbacks.
Benefits of selecting a professional fiduciary
- Professional fiduciaries are typically well-trained and experienced in managing financial affairs, including investments, taxes, and estate planning. They are often better equipped to handle complex financial matters than a family member or friend.
- A professional fiduciary is typically not emotionally invested in the affairs of the person or entity they are representing, which can make them more objective in their decision-making and less likely to be swayed by personal biases or conflicts of interest.
- Professional fiduciaries are typically required to follow strict standards, and they are often subject to oversight by regulatory agencies. This can provide a greater level of accountability than if the fiduciary was a family member or friend.
- Professional fiduciaries are typically able to provide continuity of service, meaning that they can continue to manage the financial affairs of an individual or entity even if the primary fiduciary is unavailable or incapacitated.
Drawbacks of selecting a professional fiduciary
- Professional fiduciaries typically charge fees for their services, which can be more expensive than if a family member or friend were to serve as the fiduciary.
- A professional fiduciary may not have the same personal relationship with the individual or entity they are representing as a family member or friend, which can lead to a lack of understanding or empathy for the individual’s or entity’s personal needs or preferences.
- A professional fiduciary may have other clients or business relationships that could create a conflict of interest when managing the affairs of an individual or entity.
- Professional fiduciaries may have limited flexibility in their decision-making, as they are often required to follow strict legal and ethical guidelines with many internal processes as safeguards.
This guide provides general information about estate planning and is not legal advice for your situation. Laws vary by state and change over time. Please talk with an attorney before acting on anything you read here.