Who Should You Choose as Your Fiduciaries?
Clients often hear the word “fiduciary” mentioned when visiting an estate planning attorney. Simply put, a fiduciary is “someone who has undertaken to act on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.”
What does this mean with respect to your estate plan? As part of any well-rounded plan, you should have a Will, a Power of Attorney for Finances and Legal Decision Making, a Power of Attorney for Healthcare Decision Making, and often, a Trust. All of these documents require that you choose a fiduciary, each serving a different function depending on the document.
With respect to your Will, the fiduciary is generally called your Executor. Your Executor is responsible for carrying out the wishes you have expressed in your Will upon your passing. Similarly, your Trustee (if you are not Trustee of your own Trust or if you can no longer serve as your own Trustee), is responsible for following your wishes as expressed in the Trust document. Sometimes, your Trustee does not need to take action until after your passing, much like the Executor under your Will. But often, your Trustee is called upon to manage your Trust assets for your benefit while you are living. Thus, there is the potential that your Trustee will have “fiduciary duties” while you are living, as well as after you pass.
Your Powers of Attorney for finances and healthcare are “inter vivos,” or “during life” documents, meaning they expire and are of no further effect upon your passing. Your “attorney-in-fact” for finances and legal decisions may serve as manager of your personal affairs, pay your bills, file your income taxes, or even sell your home, should you need assistance doing so. Your “healthcare agent”, on the other hand, is responsible for making, as the name implies, medical decisions on your behalf in the event that you cannot communicate your wishes to a physician.
Who should you choose to take on these responsibilities? In the case where your fiduciary will not be your spouse, is one child more equipped than another to serve in a fiduciary role? Here are a few factors to consider in making the decision:
- Competence: The fiduciary duties discussed above are not to be taken lightly and come with legal obligations that require the fiduciary to act properly and prudently. Someone who cannot seem to manage his or her own affairs is probably not a good person to name as the person who may potentially manage yours if you become incapacitated. Furthermore, someone who is not “good with money” may not be the best person to serve as your financial attorney-in-fact or Trustee, as these roles may require them to manage your finances one day. Likewise, a person with poor organizational skills may not be an appropriate Executor, as he or she will have to administer your entire estate down the road—no easy task.
- Location: Your fiduciary’s proximity to you is of great importance. Often times, it is helpful for your health care agent or financial attorney-in-fact to appear in person to perform certain tasks, such as meeting with your doctor or convening at your local bank. It can become a logistical nightmare requiring someone who lives on the other side of the country to perform these tasks on your behalf.
- Trustworthiness: As already noted, fiduciaries are legally obligated to serve in a prudent manner and take the utmost care in acting on your behalf. But experience shows us that even with this required standard of care, fiduciaries don’t always live up to expectations. It’s worthwhile to have a conversation with your potential fiduciaries prior to making your final decision to make sure that they’re up to the task, and that you trust in their ability to carry out their duties.
- Age: Often, children are a natural choice to serve as your fiduciaries. Even though your children may not be at a level of maturity sufficient to carry out these duties at present, you may choose to name them with the expectation that by the time they are called upon to serve as fiduciaries, they will be ready. Such a selection should be considered carefully, however. While you might not expect your children to have to step in to the role of fiduciary any time soon, emergencies are always unforeseen. Thus, your fiduciary choices should always be made with outlook that your present choices for fiduciaries could be called upon tomorrow. Choosing one’s parents as fiduciaries presents unique problems as well. By the time one’s parents are called upon to serve as fiduciaries, there is always the possibility that they are no longer the logical choice to serve as such, or worse, that they are no longer around to serve.
There are many other considerations that might affect your fiduciary selections, but these generally serve to get the conversation started.