Most often, when I sit down with a new couple to discuss their Will, Trust, or other estate plan documents, their primary focus is: (1) controlling who will receive their assets and under what conditions; (2) making things as easy as possible for their loved ones; and (3) preserving assets (e.g. avoiding probate and/or minimizing taxes). Once we fully understand the family dynamics and what the client truly means by these goals, we can then discuss the all-important question … Who is going to be the executor or trustee, the person or entity entrusted to carry out the plan we create? While myself or another attorney may be asked to help advise the executor or trustee at some point, the two keys to a successful estate plan, in my opinion, include: having a clear, consistent document which is properly executed according to the clients’ state law (as each state differs), and choose wisely when naming the executor and/or trustee who will be entrusted to administer the documents.
For many people, choosing an executor or trustee seems like an easy choice at first thought – appoint my spouse, my kids, my brother, my friend. However, clients often underestimate the consideration which needs to be given when appointing a fiduciary (someone who is legally bound to act on his or her behalf).
First, consider just some of the duties of an executor under a Will which is subject to probate in even the simplest of cases: collecting the assets; disputing and/or paying valid debts and claims; protecting the assets; preparing an inventory of the assets; representing the estate in claims against others, and distributing the estate property to the beneficiaries (the latter of which may likely require liquidating assets by selling the real estate, stocks and bonds, or having an auction for personal property, vehicles, or equipment). Then there is a trustee of a Trust, similar to an executor but someone who potentially may be serving and administering the Trust for years, depending upon the terms of the Trust. The Trustee will likewise need to gather the assets, pay valid bills, then often manage assets in trust for the benefit of the beneficiaries, provide accountings to the beneficiaries, and often are required to make difficult decisions such as whether and to what extent principle or income should be paid out, all while potentially fielding requests of numerous beneficiaries and confined to the terms and powers the Trust provides (or fails to provide).
Sometimes an executor and trustee may be the same person or entity; sometimes not. For purposes of this article, we will treat them the same and simply refer to them as the fiduciary. Having considered just some of the responsibilities a fiduciary under a Will or Trust may have, following are some basic things to think about when choosing your fiduciary:
- Always consider naming a few fiduciaries, in order of priority, who will serve. If there are not many individuals you feel comfortable with in this position (which is common), consider naming a corporate trustee or provide a method in the document so that someone or a group of people have the power to appoint an alternate fiduciary. If the document doesn’t cover it and the person you name is unable or unwilling to serve, your loved ones will likely be asking the Court to appoint someone.
- Consider the pros and cons of having co-fiduciaries. If two people are serving the same role and they disagree on something, how will the decision be made? What if one of the co-fiduciaries is unable or unwilling to serve (especially in a blended family wherein some clients like to have a relative from each family serve as a fiduciary).
- If there are already strained relationships or other issues among children, for example, does it make sense to name one of the children as fiduciary and give him/her complete discretion when there is already distrust or dislike in the family? To help minimize conflict, in some cases it may be wiser to appoint someone who is not as emotionally or financially invested, unlike family members or business partners, for instance.
- Have you asked the person or entity you are naming as fiduciary if he/she/it is willing to take on this responsibility? As previously mentioned, this can often times be quite an undertaking. Does the fiduciary have the time to devote to the process, and to have the wherewithal to employ an attorney, accountant, financial investor, and the like, as needed to properly and effectively administer your estate plan?
In addition to having a well drafted document with clear instructions and defined powers and limitations, don’t underestimate the gravity of selecting the proper fiduciaries who will someday step into your shoes and carry out your plan. Have an open dialogue with your estate planning attorney about these questions, and you will likely have much more peace of mind that your documents will be administered smoothly, as you intend.
The information contained herein is for informational purposes only, and is not legal advice or a substitute for legal counsel. You should not act or rely on any information herein.