Choosing a Trustee, Executor or Agent for Your Estate Plan
Creating an estate plan can be rife with challenges. It’s hard enough to catapult yourself into a mindset where your future self is incapacitated or deceased, let alone decide which assets you want to leave to whom, when they should get them, and importantly, which people or entities you want to oversee the whole process.
That last point can be one of the stickiest challenges in the entire estate planning process–who do you want to appoint to oversee your healthcare and financial matters if you’re incapacitated, and the administration of your trust or estate when you’re gone?
What Roles do You Need to Appoint?
In an estate plan, “fiduciaries” is a catch-all term which refers to the individuals or institutions designated to handle a person’s financial and healthcare matters during incapacity, and to administer and/or distribute financial assets to beneficiaries under the terms of a will or trust, upon death. Fiduciaries bear a responsibility to act ethically and in the best interests of those they are serving, and there can be several fiduciary roles in any estate plan. Specifically, if you have created a trust, you’ll need to name a successor trustee; if you have a will, you’ll need an executor. Additionally, you’ll need to name agents for your financial and healthcare powers of attorney to act on your behalf should you become incapacitated.
Types of Fiduciaries
There are three primary types of fiduciaries you can choose from when creating your estate plan. The first is an individual person, such as a close family member or friend, or even a trusted professional such as an accountant or an attorney (subject to their licensing restrictions). The second is a corporate trustee, and the third is a licensed private fiduciary. In selecting the fiduciaries for your estate plan, you’ll need to consider the size and complexity of your estate, as well as the term of any trust you create. The factors affecting your decision will be unique to your own circumstances, so let’s review these fiduciary types and discuss some nuances that might affect your decision.
Family, Friends, or Other Individuals
Because they know and love you, it can be comforting to choose a family member or friend to act as your fiduciary, and this may also be a more economical choice compared to the other alternatives discussed below. A family-or-friend fiduciary can be a good choice as your healthcare agent, because that role may require making decisions based in part on an understanding of what you would want, if you could make the decision for yourself. When naming an individual to any fiduciary role in your estate plan, you should be sure to name more than one person to act consecutively, in case the first person selected cannot serve. That said, be cautious about naming more than one family member or friend to serve together at the same time, in any role. For example, parents might name two or more children to act concurrently as their healthcare and financial agents and co-trustees. Even if the children are given the power to act individually rather than having to make decisions jointly, a concurrent appointment of multiple individuals can create a family rift if they disagree on any significant issue, which is why some estate attorneys discourage their clients from naming co-fiduciaries for any role. Children acting consecutively can still confer with and support each other in decision-making, but the “consecutive” rather than “concurrent” designation means that there is only one person legally vested to make and move forward with a decision, which is helpful in cases of disagreement.
While family and friends are the most common choice for the role of healthcare agent, they may not always be the best option for overseeing your financial matters during incapacity or after death. You may not wish to burden your family or friends with that fiduciary responsibility, and if your trust or estate is larger or complicated in some way, a family member or friend might not have the experience or skillsets needed to manage intricate financial matters. That can create a lot of stress and potentially subject them to liability if they mismanage the trust or estate. Also, relationships between the family-or-friend fiduciary and other family members may suffer if there are differences of opinion, conflicts of interest, or issues of perceived unfairness in the administration of the trust or estate. This is not to say that family or friends should never act as trustees, executors, or financial agents in an estate plan, but they should be well-suited to the role with the necessary financial and interpersonal skills. If you want a family member or friend involved but they don’t have financial acumen, you could consider appointing a family/friend fiduciary in tandem with a corporate trustee or licensed private fiduciary to serve together as co-executors or co-trustees. This combines the intimate familiarity of the family-or-friend fiduciary with the expertise and objectivity of the professional fiduciary.
Corporate Trustees
Corporate trustees include trust companies and banks which are structured specifically to manage the financial details of a large volume of trusts and estates. There may be one person in the lead role from the corporate trustee firm who serves as your beneficiaries’ point of contact, but succession is not an issue because that person is part of a larger professional team, so you don’t need to name consecutive fiduciaries as you do with an individual. A corporate trustee likely won’t know your personal or family history well, but that can be an advantage. Their fiduciary duty is to be impartial to any specific family members and/or beneficiaries, so they will act with objectivity and fairness even in dealing with beneficiaries who may have competing interests.
On the other hand, because of their lack of knowledge about a family’s history, corporate trustees may not be familiar with or sensitive to the circumstances, concerns or goals of the beneficiaries and other family members. Also, corporate trustees generally do not act as healthcare agents, so they are not necessarily an all-in-one fiduciary choice. Lastly, as with any professional service, it’s important that you understand the cost of corporate trustee services. Corporate trustees typically are paid a percentage of the assets managed, which may make them cost-prohibitive for smaller trusts and estates.
Licensed Private Fiduciaries
Licensed private fiduciaries are individuals who are regulated by state law, licensed and bonded as professional fiduciaries, and bound to act ethically in serving the best interests of their clients. They have the professional skills and many of the resources provided by a corporate trustee, but typically operate their businesses on a smaller scale, so they may be able to provide more personal attention, responsiveness and familiarity with the goals and concerns of the beneficiaries. Licensed private fiduciaries typically charge hourly fees, so they are likely to be less expensive than a corporate trustee, and many of these professionals will handle all roles including executor, trustee, and agents under healthcare and financial powers of attorney. They are often in small or sole practices, so if you are considering appointing a licensed private fiduciary, be sure to ask about their succession plan. Most have a plan for another private fiduciary to take over their practice if they retire or are otherwise unable to serve, so you should understand and be comfortable with that before appointing them.
Be Intentional and Organized
At TCI, we operate in a unique way: we approach our clients’ financial and estate planning needs together because they are closely aligned. From our earliest conversations we’ll help you craft a plan that considers your goals, needs and wishes, without causing you to feel overwhelmed or confused. Remember, nothing is set in stone. Should your circumstances change at any point, we can adjust your financial plan and review how it impacts your estate plan. Frankly, we encourage you to review it every couple of years.
Perhaps most importantly in the estate planning process is letting people know where your documents live. Should you be incapacitated, the last thing we want for your loved ones is a goose chase attempting to track down important information. To make this process easier, we developed a “Where’s My Stuff?” booklet where you can write down important information your loved ones need to know when you can’t provide the answers. Some examples of what the booklet asks for include:
- Estate planning attorney
- Will/ Trust information
- Primary Care Physician
- Specialty Physicians
- Business Interests / Partners
- Attorney
- Accountant
- Employer
- Insurance Agent
Estate planning should be an empowering process because establishing your legacy is an important part of living. No matter where this process takes you, choose a fiduciary that gives you peace of mind knowing your wishes will be carried out. Your estate attorney and your TCI advisor will gladly help you think through this important decision, which will have meaningful and lasting impacts for you and your beneficiaries.
TCI is not a law firm and no portion of its services should be construed as legal advice. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from TCI.
