Although you may not realize it, some of the decisions that impact the success, or failure, of an estate plan are frequently made without giving them much thought. Those decisions are the ones that relate to choosing fiduciary roles throughout your estate plan. To help you make the best decisions, let’s explore how to choose the right fiduciaries in your estate plan.
What Is a Fiduciary?
A fiduciary is a person who holds a legal or ethical relationship of trust with another person or a group of people. Put another way, a fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. Furthermore, a fiduciary duty is the highest standard of care in equity or law. A fiduciary is expected to be extremely loyal to the person to whom he/she owes the duty and must not profit from the position as a fiduciary. A fiduciary can receive a fee for services; however, he/she should not profit at the expense of the other party.
Fiduciary Roles within Your Estate Plan
Although every estate plan is unique, the average plan will have more than one fiduciary role within the plan. The most common examples of fiduciary roles in an estate plan include:
- Executor — when you create your Will, you will be required to appoint an Executor who is responsible for overseeing the administration of your estate during the probate process.
- Trustee — if you incorporate a trust agreement into your estate plan, you will need to appoint a Trustee. Your Trustee will manage and invest trust assets as well as administer the trust agreement using the terms you created.
- Agent in a Power of Attorney – when you create a POA you must appoint an Agent who will have the legal authority to act on your behalf in legal matters other than healthcare decisions.
- Agent in an Advance Directive – if you create a health care power of attorney you will need to appoint an Agent to make healthcare decisions for you if you are unable to make them yourself because of your incapacity.
How to Appoint the Right Fiduciary
Appointing the wrong person to a fiduciary role is among the most common estate planning mistakes. To help prevent you from making a mistake, ask yourself the following five questions when choosing a fiduciary:
- Does he/she have the necessary skills/experience? Not all fiduciary roles require special skills, but some do. A Trustee, for example, should ideally have a legal and/or financial background.
- Is this someone I trust implicitly? A fiduciary typically makes extremely important decisions as well as handles valuable assets. You must be able to trust a fiduciary unquestionably.
- Will this person be capable of fulfilling the role? Does the person live close enough? Will his/her job allow sufficient time to perform the duties required? Will the person be able to set aside emotions and think clearly when necessary?
- Is this person willing to accept the appointment? Never assume that someone is willing to be your Executor, Trustee, or Agent. Always ask them directly before appointing them.
- Does appointing this person create any conflicts? There are numerous potential conflicts in an estate plan. For example, if your Trustee has an existing personal relationship with one beneficiary but not with the others, it can create a conflict.
Please download our FREE estate planning checklist. If you have additional questions or concerns about choosing fiduciaries in your estate plan, contact us at the Northern California Center for Estate Planning & Elder Law by calling (916)-437-3500 or by filling out our online contact form.
- Beneficiary Designations and the SECURE Act: Prior Designations - July 17, 2021
- Beneficiary Designations and the SECURE Act: Eligible Designated Beneficiaries - July 15, 2021
- Beneficiary Designations - July 13, 2021