Beyond The Will, Client Compass

When preparing your estate plan, it is essential to designate the proper fiduciaries to handle your affairs during your incapacity or after your death. How do you choose the right person for each of these roles? This is one of the most common questions asked regarding estate planning.

It can be difficult to decide who to name as a fiduciary in your estate plan and understand the different roles fiduciaries play in various estate planning documents. This article will shed some light on how to choose the right fiduciaries for you.

Who Are Fiduciaries and What Are Their Roles?

Fiduciaries are the individuals you name in your estate plan to handle your affairs if you were incapacitated and to administer your estate after your death.

Under your Will, this would be your Personal Representative (or Executor in some states), and under your Trust, this would be your Trustee. Your Personal Representative oversees the administration of your estate, files probate documents and estate tax returns, pays off debts and distributes your assets to your named beneficiaries. Depending on the provisions in your Will, distributions may be made to the Trustee of your Trust, and the terms of the Trust would control further distributions to your beneficiaries.

Your Trustee manages your Trust’s assets, makes investment decisions and distributes assets to beneficiaries. Trustees often have sole discretion when making distributions, so they will determine when distributions will be made to beneficiaries – and what those distributions will be.

In your Durable Power of Attorney, you would designate an attorney-in-fact to handle your financial matters. Your attorney-in-fact steps into your shoes and is authorized to make financial decisions for you. This includes access to your bank accounts and other assets. Under most Durable Powers of Attorney, the attorney-in-fact is vested with these powers immediately, without a specific finding of incapacity. However, the attorney-in-fact would not likely use these powers until and unless you are unable to do so yourself.

You can also designate a health care agent under your Health Care Proxy to make medical decisions for you if you are incapacitated. In this situation, your health care agent would make critical end-of-life decisions on your behalf, following your wishes in your Health Care Proxy. They would work closely with your doctors and medical team to make the proper decisions for your care.

How Do I Choose the Right Fiduciary for Me?

When choosing your fiduciaries, it is important to consider your relationship with that person and how they would handle your assets after your death. Acting as a fiduciary can often be a big responsibility, so you should choose individuals with the time and ability to handle your affairs.

Personal Representatives and Trustees

As mentioned above, your Personal Representative and Trustee will be responsible for administering your estate and distributing your assets after your death. You should choose someone who is financially responsible and capable of handling the responsibility. Estate and Trust administration can take months and sometimes years to complete, so the person you choose should be someone who has the time and patience to handle this process. Many people often name the same person as Personal Representative and Trustee because of how closely the two roles interact.

Attorneys-in-Fact and Health Care Agents

When choosing your attorney-in-fact and health care agent, you should choose someone you trust with your financial and medical decisions if you are incapacitated. Your attorney-in-fact will have access to your bank accounts and other assets, often immediately upon executing your Durable Power of Attorney, so you should name someone you are comfortable giving such authorizations to.

Your health care agent will be in charge of all your medical decisions, so you should choose someone you know will honor end-of-life wishes and make the medical decisions you would likely make for yourself if you could do so.

You can also name joint fiduciaries if you cannot decide on one person or if you think the responsibility would be too much for one person to handle alone. Parents often name their adult children as joint fiduciaries on their estate planning documents. In this event, provisions would be put in the document detailing how they should work together and what should happen if there were ever a disagreement.

However, it is not recommended to name joint fiduciaries for end-of-life care documents like the Durable Power of Attorney or Health Care Proxy. When the use of those documents is necessary, it is often in an emergency situation, and hospitals and other institutions prefer working with one fiduciary.

Other factors to consider when naming a fiduciary include the age and health of the person you would like to name and where they are located. Ideally, you should choose someone with the physical and mental capacity to handle your affairs as you age or after your death. This person should also be located nearby so they can easily communicate with your family members as well as access your assets without having to travel.

What Guidance Will My Fiduciaries Receive?

Although each fiduciary has a specific role, the person you designate will likely have have no prior experience in administering an estate or handling someone else’s financial affairs. However, they are given guidance from the law in your state and by the estate planning documents themselves.

All fiduciaries are held to a duty of care and a duty of loyalty. The duty of care requires your fiduciaries to make prudent and informed decisions on your behalf. The duty of loyalty prohibits your fiduciaries from making decisions that benefit themselves and requires them to disclose any conflicts of interest they may have to your beneficiaries.

Aside from these specific duties, each estate planning document sets out specific responsibilities for your fiduciaries, so they are given guidance regarding their role in your estate administration. For example, Trustees are often required to provide specific written accounts to the beneficiaries of how trust funds are being spent in order to hold them accountable. They will also work closely with the attorney handling the probate of your Will and administration of your Trust. However, it may also be helpful for you to have a discussion with your nominated fiduciaries about the role they will have, why you chose them and what your intentions are with respect to them carrying out their duties.

Can Fiduciaries Be Changed or Replaced?

Like most provisions in estate planning documents, fiduciaries can be changed or replaced while you are alive and competent. It is important to designate at least one successor fiduciary for each role in case the first person you designate is unable or unwilling to serve. It is common for spouses to name each other as the primary fiduciaries for these roles, with their adult children or other adult family members as successors.

If one of your named fiduciaries is not capable of serving or does not act responsibly in their role, most estate planning documents include provisions that allow beneficiaries to remove them or to petition a court to remove them. In this instance, they would be replaced by someone more capable of handling the role and responsibility.

Choosing the correct fiduciaries in your estate plan is a vital part of the estate planning process and should be taken seriously. As mentioned above, fiduciaries can be changed, so you should contemplate who you have designated in each capacity as your relationships with these individuals evolve and change. The most important consideration is to name someone you trust will honor your wishes and properly handle your assets after your death.