All estate plans require that you designate someone to handle financial matters upon your incapacity or death. Whether you are single or married, have a modest estate or millions, the most important estate planning decision you will make is choosing your Fiduciary. Your Fiduciary is the “trustee” in your Trust, the “attorney-in-fact” or “agent” in your Power of Attorney, and the “executor” in your Last Will.
You can have all the right documents, sign deeds for your real estate, and update your investment accounts and beneficiary designations, but if you choose the wrong person to handle these items, your money and property may not be administered the way you want if you become incapacitated and after you die. Before you choose your Fiduciary, you have a lot to consider.
The person you choose will need to have the right temperament, knowledge and experience. He or she will obviously have to be trustworthy since, in most cases, your Fiduciary will operate without direct supervision and will make a lot of financial decisions. You need to understand what your Fiduciary will have to do and the challenges he or she may face and they need to have a plan to gain access to your documents and information when the need arises; a great starting place is your LawSafe.
Who May Serve?
You may name a family member, friend, business associate, or a corporate trust bank to serve as your Fiduciary. We generally recommend naming one Fiduciary to serve alone, with one or more backups. Naming two or more Co-Fiduciaries to serve together is an option but can be inconvenient for them and may give rise to disagreements and deadlock. If you are inclined to nominate two or more people to serve together as Co-Fiduciaries, the matter should be carefully analyzed.
What Does A Fiduciary Do?
Your Fiduciary will handle your financial matters if you are incapacitated. If you have a minor health event, your Fiduciary might just temporarily pay your bills. In the case of a long-term or permanent health problem, your Fiduciary may be involved for years to collect your income, pay your expenses, handle your investments, make decisions for long-term care and handle all your other financial affairs.
Your Fiduciary is also in charge of your trust/estate when you die. Some of the items he or she will handle are:
- Inventorying all your property and investments; if you do not have a trust, probate may be necessary;
- Selling your real estate;
- If you have a business, he or she will manage it until it is sold or transferred to the next generation.
- Paying your final bills and filing your income taxes;
- Finally, your Fiduciary will distribute the remaining balance of your trust/estate to your heirs (or hold it in trust for their benefit).
Trusts are often established to handle funds for many, many years after you die – typically for the benefit of minor/young beneficiaries or for those who have special needs. In these cases, your Fiduciary may be in charge of the trust for decades. You may set standards for your Fiduciary to follow in handling a trust for your heirs, but to some extent your Fiduciary will have discretion on how the funds are going to be used. Be sure you have faith in his or her judgement when choosing your Fiduciary.
Your Fiduciary will need to organize everything and keep track of financial and other activity. He or she must carefully evaluate any situation that arises with attention to various technicalities. They will need to hire people from time to time to help, including financial advisors, accountants, real estate agents and attorneys. Your Fiduciary will have to communicate with all of these parties regularly and effectively, as well as your financial institutions, your family and heirs. Finally, on a regular basis he or she will have to give a written report to your heirs (called an “Account of Fiduciary”) summarizing all of his or her financial and other activities.
Typically, to handle the average trust or estate your Fiduciary will have a dozen or more meetings with various parties (beneficiaries, banks, professionals, etc.). He or she will handle dozens of calls and letters to and from beneficiaries and others and expend several dozen more hours in total time and attention to related matters. These responsibilities will likely require time off from work and a certain amount of “grief” to get everything done.
To be certain, serving as a Fiduciary is a responsibility and not a privilege. You can help ensure your Fiduciaries have everything they need to carry out their fiduciary duties by establishing a LawSafe and giving them basic access to the documents and information they may need.
Personal Qualities And Circumstances
Your Fiduciary will have control over your assets with no direct supervision, so choosing a person you implicitly trust is a given. However, trustworthiness is not the only consideration.
A procrastinator will not make a good Fiduciary. You need someone who can get things done in a timely manner. People who are detail-oriented will do better than those who are not. Someone who is firm may be better than someone who is carefree because a Fiduciary oftentimes has to say “no.” A strong-willed and confident person may be a good choice, but a stubborn person who only does things his or her own way will be a poor one.
Consider your prospective Fiduciary’s outside influences: Your sister might be the perfect choice, but if she is having serious marital difficulties or her husband is always “in and out of work,” she might not be suitable. If your prospective Fiduciary is living paycheck to paycheck doing manual labor, he or she is probably not accustomed to handling and making decisions regarding large sums of money. Although choosing someone because they are financially well-off or highly educated is not necessary, consideration should be given to the person’s own financial circumstances and abilities.
If your trust is going to be held for a very long time, say for minor or young beneficiaries, or someone with special needs, you need someone who is old enough to handle things now but not so old that he or she may not be able to handle them later. You should choose someone who gets along well with your beneficiaries, but you need to keep in mind that your Fiduciary may have to be the bad guy and say “no” to them from time to time; this may complicate their relationship.
Non-Family Member As Fiduciary
A Trust Protector can oversee your Fiduciary’s banking, investment and other activities without interfering on a daily basis with the decisions your Fiduciary must make. A Trust Protector may be given limited or broad authority. He or she will usually not have voting power like a Co-Fiduciary but may have veto power over major decisions. Your Trust Protector may also be empowered to remove a Fiduciary if he or she is not complying with the terms of your Trust.
You should consider the pros and cons of naming a bank as Fiduciary. A Trust Bank has extensive Fiduciary experience and expertise, with staff to handle the paperwork and professionals to handle legal and tax matters. Perhaps most importantly, a Trust Bank also has internal checks and balances (and deep pockets), so your assets will be safe. However, all of this comes with a cost which may be unappealing if not prohibitive, and a Trust Bank may not be suitable if you have extensive real estate and/or private business interests. You must weigh the benefits and the costs of using a Trust Bank given your particular circumstances.
There are many roles your Fiduciary will have to play. In certain cases, it may make sense to divide responsibilities among separate, “special” Fiduciaries. For example, if you have extensive real estate holdings, you may want to give someone with real estate experience authority to deal with just real estate matters. Or, with an ongoing trust for young beneficiaries, you might give one person authority to communicate with your beneficiaries and decide how to use the trust fund for them, while another person controls the investments, accounting, and other administration responsibilities of the Trust.
1 Most Financial Advisors are prohibited from serving as a Fiduciary. There are limited exceptions for Advisors to serve for their own family. As a result, while in many respects a Financial Advisor may make for the perfect Fiduciary, they are often not eligible to serve.