Fiduciaries can hold a lot of power when it comes to the successful execution of one’s estate plan—they make crucial financial decisions, act as advocates for a client’s wishes, make sure an estate’s debts are settled, and ensure that each beneficiary gets what they were intended to receive. As such, helping clients choose the right individual to carry out these duties can be the difference between successfully carrying out a client’s wishes and complete calamity.
When it comes to choosing the best individual for the role, many clients are immediately inclined to choose a loved one. But seasoned estate planners know that close family members and friends aren’t always the best choice.
A fiduciary is someone who owes a series of duties to another person within the scope of their relationship. Fiduciaries may carry out many different roles in the execution of an estate plan. They can be trustees of a trust, executors of a will, agents under a financial power of attorney, or guardians of a minor child or an incapacitated adult who may be entrusted with money or property. Agents under a healthcare power of attorney are also referred to as fiduciaries, although their surrogate decisions aren’t directly related to finances. In each instance, the fiduciary has a great deal of responsibility. Therefore, clients should give thoughtful consideration to who would be the most appropriate individual to fill each role.
First, let’s touch on the general attributes that a client should look for when selecting any type of fiduciary. While many clients may be tempted to select a close friend or family member to serve in the fiduciary role, it is crucial to make sure that the candidate has the capacity and capability to carry out this role. Aside from the general requirement that a fiduciary be an adult (18 years or older), encourage your clients to think about whether that person has any known medical challenges or legal impediments that might prevent them from fulfilling their duties as fiduciary. When planning for the near and distant future, clients should also consider an individual’s potential longevity and availability. Sometimes the most technically qualified individual may be too busy to undertake the responsibilities of serving as a fiduciary. Typically, the general attributes of a good fiduciary are:
- Responsible and organized
- Financially stable and secure
In addition to these general attributes, there are some additional criteria one should consider when making the selection for each type of fiduciary. Include the following questions when helping to guide clients to make the right selections:
Agent under a healthcare power of attorney: Does this person have the ability to make tough, emotionally charged decisions quickly? Will they be able to effectively advocate for your wishes to medical personnel and to family members? Do you both hold the same values? (For example, don’t pick someone who doesn’t believe in blood transfusions if you do!) Are they available to quickly arrive at a medical facility in the event of an emergency?
Agent under a financial power of attorney: Are they responsible and trustworthy? Are they financially astute enough to make complex financial decisions, such as assessing investments and filing taxes?
Guardian who will handle money or property for a minor or incapacitated person: Do they know your values and principles? Do they have the life experience or anticipated life span to care for the dependent(s) for whom you are planning? What is the current geographic location of the potential guardian, and what could be the impact of a move on your dependent or on the guardian? Are they financially able to care for the minor child or incapacitated adult without undue stress? Are they willing to take on the responsibility for the dependent’s care?
Trustee of a trust or executor of a will: Is this person organized? Are they accountable? Can they withstand pressures from beneficiaries or third parties over the course of the trust or estate administration? Is the person in good financial standing (e.g., they should have a good credit history, no liens against them, and have never declared bankruptcy)? Would they likely be available and capable of serving as executor when the time comes, even if it is years down the road?
If a client cannot identify an individual in their circle of family and friends to fulfill any of these roles, or if circumstances dictate that the use of a third party would be the most advantageous choice, then an institution (like a bank or trust company) or individual professional (like an attorney) can be considered for the fiduciary tasks. In some instances, a client may wish to consider appointing co-fiduciaries and trust protectors as a multi-layered system of checks and balances. In all cases, clients should strive to select fiduciaries who can work together to ensure that a client’s legacy is carried out successfully and according to plan.