How to Select the Right Fiduciary to Handle the Administration of Your Estate
When it comes to planning for the future and ensuring the smooth administration of your estate, selecting the right fiduciary is of paramount importance. A fiduciary is an individual or entity entrusted with the responsibility of managing your affairs and assets according to your wishes. In this article, we will discuss the various roles that require an appointment, the types of fiduciaries available, the choices among individual or corporate options, fiduciary responsibilities, appointing multiple fiduciaries, the involvement of children in fiduciary roles, and the benefits of choosing a corporate fiduciary over an individual.
Different Roles Requiring Appointment
Depending on the complexity of your estate plan, several roles may require appointment. Oftentimes, it is recommended that there be consistency in the named fiduciary for each of these roles as there can be a significant amount of overlap among them. The primary roles include:
- Personal Representative/Executor: The personal representative, also known as the executor, is responsible for managing the estate administration process, including collecting assets, paying debts and taxes, and distributing assets to beneficiaries.
- Trustee: If you establish a trust, a trustee is appointed to manage the trust assets and carry out your instructions as outlined in the trust document. The trustee has a legal obligation to act in the best interests of the beneficiaries.
- Financial Power of Attorney: A power of attorney is a person granted authority to make financial or healthcare decisions on your behalf if you become incapacitated. They manage your affairs and ensure your wishes are followed.
- Trust Protector: A Trust Protector can be named to oversee the actions of the Trustee, to remove a Trustee, and appoint a successor Trustee as needed.
Regardless of the type of fiduciary selected, they bear certain essential responsibilities, including:
- Prudent Investment Management: Fiduciaries should manage assets responsibly, making wise investment decisions and considering the long-term financial goals of the estate or trust.
- Administrative Actions: Administrative actions include accurate and comprehensive record-keeping to maintain transparency and provide a clear account of all financial transactions, filing of tax returns and active/ongoing communication with beneficiaries, providing updates on the estate or trust administration, and addressing any concerns.
- Distribution Decisions: One of the most important responsibilities of a fiduciary is making distributions to beneficiaries. For ongoing trusts created with the intention of deferring distribution, these responsibilities could extend for a significant period and require a strong leader to ensure your wishes are carried out.
- Acting in Good Faith: Fiduciaries must act honestly, diligently, and in the best interests of the estate or trust beneficiaries.
Choices Among Options
When considering options for fiduciaries, you must weigh the pros and cons of individual and corporate choices. Factors to consider include:
- Individual Fiduciaries: Selecting a family member or close friend as a fiduciary may provide a personal touch and a deep understanding of your wishes. However, it is essential to assess their competency, availability, and potential conflicts of interest. In addition, it is strongly recommended that you name successor appointments to the extent your primary appointment is unable or unwilling to serve.
- Professional Fiduciaries: Engaging a professional, such as a certified public accountant (CPA), a law firm, or a trust company, provides:
- Expertise and Experience: Corporate fiduciaries have specialized knowledge, experience, and resources to handle complex estate and trust matters effectively.
- Impartiality and Accountability: Corporate fiduciaries act independently, free from personal biases or conflicts of interest, ensuring fair and impartial administration.
- Continuity: A corporate fiduciary can provide continuity in the administration of your estate or trust, ensuring seamless transitions even in the event of incapacity, resignation, or death.
Appointing Multiple Fiduciaries
Appointing multiple fiduciaries, known as co-fiduciaries, can provide checks and balances, particularly for larger or more complex estates. Co-fiduciaries can share the workload, bring complementary skills, and ensure accountability among themselves. Oftentimes an Individual Fiduciary can be named to handle distribution decision making, while a Professional Trustee is named to handle all investment and administrative action items.
- Involvement of Children in Fiduciary Roles: Deciding when a child should serve in a fiduciary capacity depends on their age, level of responsibility, and capability to handle financial matters. It is crucial to assess their competence objectively and consider potential conflicts of interest among family members. A child could also be named to serve as a co-fiduciary or sole fiduciary upon attaining a certain age.
- Benefits of Choosing a Corporate Fiduciary: Opting for a corporate fiduciary offers several advantages, including the expertise, experience, impartiality, accountability, and continuity outlined above.
Selecting the right fiduciary is a critical decision that requires careful consideration. Whether choosing an individual or a corporate fiduciary, it is essential to assess their qualifications, expertise, and alignment with your goals. By understanding the different roles, responsibilities, and options available, you can ensure the smooth administration of your estate and the fulfillment of your wishes. Consulting with an experienced estate planning professional from the Chesapeake Growth Network can provide valuable guidance in making this crucial decision.