Choosing Your Fiduciaries—Important Considerations to Make

Jennifer Bittel Derby jderby@tuckerlaw.com, (412) 594-3936

Something that I am consistently surprised by in practicing law is how many clients delay the process of estate planning. As a lawyer with a degree in psychology, I am interested in the reason why many individuals, couples, and families have a difficult time “getting around to” their estate planning. Statistically speaking, most of my clients fall into one of a few limited categories causing their estate planning delay. One of these includes the emotional complexity of having the conversation in the first place. It is not an easy subject to discuss, and emotionally speaking, humans do not enjoy having these tough conversations. Another common reason is that choosing fiduciaries under estate planning documents is not an easy task. Part of the complexity around choosing an executor, trustee, agent, or guardian is that the client often does not understand the role of each fiduciary and how they differ. Additionally, the task of choosing a fiduciary is an emotionally complex concept involving concerns of potential hurt feelings, financial and emotional stability, location, availability, cost, and experience.

Part of the role of an estate planning attorney is to assist the client with both the important legal aspects, as well as the emotional aspects, of finalizing their estate plan. This involves a critical discussion regarding choosing fiduciaries, but only after educating the client regarding the role of each individual fiduciary.

What is a Fiduciary?

In practical terms, a fiduciary is an individual or organization asked to act for another in a relationship where trust is key. In an estate planning context, this individual or organization is generally handling money or assets of another in some capacity, and because of this, they are held to a high standard of ensuring that assets or funds placed within their control will be carefully managed and ultimately distributed in the manner set forth by the original owner of those assets and/or funds.

Types of Fiduciaries and Planning Considerations

Executor

The Executor is the fiduciary that handles distribution of a decedent’s estate pursuant to his or her Will upon death. Responsibilities of the Executor include determining whether initiating the probate process is necessary, marshalling all assets of a decedent, paying all necessary taxes and debts of the estate, and ultimately distributing assets to the beneficiaries pursuant to the terms of the Will.

One of the first considerations when choosing an Executor, as with all fiduciary roles, is whether an individual or an organization is best suited to serve. Choosing an individual not only involves considerations of who would be best suited to serve in this fiduciary position, but also involves balancing the emotional aspects of the decision. Deciding between multiple children, family members, or friends often makes this decision exponentially more difficult when balancing relationships along with ultimately who is able and willing to fulfill the duties of handling the estate’s administration.

Geographic location of the individual Executor is important also; however, as banking and financial transactions become increasingly electronic in nature, location of the Executor is not a heavily weighted factor.

Availability of an individual is an important consideration when choosing an Executor in your estate plan. If your chosen Executor works long hours or has a career or lifestyle that is very demanding on their time, handling the administration of an estate may not fit into that person’s lifestyle. Ultimately, a balancing of all of these factors leads to making the best decision as to whom should serve as an individual Executor.

An organizational or third-party Executor, such as a bank, trust company, or professional fiduciary, is another option, especially in situations where the Testator is having difficultly choosing between individual Executors. Additionally, a third-party Executor should be considered in situations where the assets within the estate are complex in nature, such as if the estate involves a business or multiple business interests, or if the estate owns significant real estate, rental properties, or other complex assets.

In choosing between an individual or third-party Executor, cost is another important consideration. Because a third-party Executor is serving in a professional fiduciary capacity, they will charge a fee for their services. In contrast, an individual Executor can generally charge a fee also, but this fee is optional and not always charged dependent upon the circumstances. Ultimately, a balance of these considerations must be made before choosing an individual or third-party executor.

Trustee

The considerations for an individual versus a third-party Trustee are similar to choosing an Executor. Often a third-party professional Trustee is chosen in situations where assets held by a trust are complex in nature. Additionally, a professional Trustee is often a consideration with a trust in place for an individual with special needs, as specialized knowledge of obtaining and maintaining government benefits is integral to the administration of the trust.

Another option both with choosing an Executor and a Trustee is to consider naming an individual along with a corporate or third-party to serve as Co-Executors or Co-Trustees. This allows the experience of a professional fiduciary coupled with a trusted family member or friend/loved one that can provide the balance and oversight being sought by the client.

When choosing a Trustee, it is important to ensure that the individual or professional fiduciary chosen understands their role, is able to follow the precise language of the trust, and will seek additional guidance if needed. A Trustee’s understanding, for example, of when principal and income of a trust are able to be distributed is a very important concept. Additionally, the Trustee needs to understand the tax ramifications of their actions.

Choosing a Trustee is not one-size-fits-all, and each scenario involves a unique balancing of all these factors to make an informed decision on whom would best serve the interests of the creator and beneficiaries of the trust.  

Agent Under Power of Attorney

A Power of Attorney is a lifetime document, meaning that it is only effective if the maker of the document, or the Principal, is still living. Once the Principal passes away, the power of attorney becomes obsolete. Because of the nature of this authority and that the fiduciary, or the “agent,” chosen under the document can have access to the principal’s assets during lifetime, choosing this fiduciary role is critically important.

The authority provided to an agent in a power of attorney document can be limited depending on the comfort level of the Principal. It is important to carefully and thoughtfully review these provisions to ensure that that the document is broad enough to provide the authority needed by the agent, but also not so broad so that the Principal has concerns about the level of authority provided to the agent.

It is less likely that a third-party, or professional fiduciary, will serve as agent under a power of attorney document, but it is still possible and can be considered under certain scenarios.

Guardian

Choosing a guardian for minor children within estate planning documents is one of the most important, yet most difficult fiduciary roles to choose. Often the idea of estate planning is generally daunting because of this decision alone for parents of minor children. As estate planning attorneys, we assist clients with making this decision by talking through options and weighing those options among other important considerations such as availability, relationships, financial literacy, along with prior experience with serving in a parental role.

Estate planning should always be specifically tailored to an individual and his or her circumstances with careful consideration placed on all factors described herein when choosing a fiduciary.

The ultimate goal is to provide the client with peace of mind in their decisions, especially when choosing a fiduciary in their plans.

Reprinted with permission from the February 5, 2023 issue of The Legal Intelligencer. © 2023 ALM Media Properties, LLC. Further duplication without permission is prohibited.  All rights reserved.