Fiduciary selection is one of the most important decisions you make in your estate plan, whether through a trust, will, or powers of attorney. A fiduciary is someone who acts on your behalf, particularly in the event of your incapacity or death. Many people seem to give it little thought, selecting their children as fiduciaries in order of birth just to keep the decision simple and avoid any question of preferences. Too often, this carelessness can lead to messy situations and conflicts.
You entrust your life, well-being and all you have in the hands of the fiduciary. As a fiduciary steps into your shoes, he/she should make decisions for you based on what you would want, if known, or what is in your best interests. And, being a fiduciary is no walk in the park but requires a lot of work and skill. I cannot emphasize enough the importance carefully selecting those who are most dedicated and able. This article discusses a few considerations when selecting a fiduciary.
Options: Family Members vs. Professionals
Family members (or friends) are the usual choice for acting as fiduciary. They hopefully are familiar with you, your needs, your preferences, your finances, your goals and values, as well as the beneficiaries of your estate after your death. Using family members may save on administration fees paid to professionals. Options: Family Members vs. Professionals
On the other hand, appointing family members as fiduciaries may have its drawbacks. A fiduciary may be the target of close scrutiny and hard-feelings that can drive a wedge in family relationships. For instance, Dad may direct his anger toward the adult child who uses a power of attorney to place Dad in a care facility when he needs it. Or, your family members may prefer the use of professionals because they lack the expertise or the time to devote to this kind of responsibility. And, occasionally self-interests may cloud your family members’ judgment (or at least that may be the suspicion). For example, they may cut corners with expenses related to your care, your quality of life, or seeking professional advice when needed, with the intent to preserve their own eventual inheritance. Maintaining peace in the family and ensuring your affairs are handled appropriately may be worth the expense of paying an independent, professional fiduciary—it may actually result in saving the estate money that otherwise would be spent on legal fees to clean up messes or to referee disputes. Perhaps let someone else be the “bad” guy!
Acting on behalf of another person as a fiduciary presents a level of responsibility and accountability your successors may not have experienced before or understand. It is not the same as handling their own finances—there are certain legal, tax, investment, and record keeping responsibilities. Do they at least have the wisdom to seek professional advice? Here are a few important considerations in your selections:
- Size/complexity of the trust/estate
- Detail-oriented and organized
- Good judgment
- Shares or respects your values
- Fair and impartial
- Proximity to you/ability to travel
- Age relative to you
- Busy with their own responsibilities
Personal problems that may divert his/her time/attention or risk self-dealing of trust funds
- Family dysfunction
- Job loss
- Substance abuse
- Sibling rivalry
- Cultural bias
- Legal fees resulting from messes or disputes
If for no other reason, these are wrong reasons to select a particular surrogate decision-maker:
- To avoid hurting feelings
- Birth order