Estate planning is a complex, yet incredibly important, undertaking. One of the most important aspects of estate planning is choosing people for the fiduciary roles within your plan. This is also an area where people frequently make mistakes. Let’s explore the importance of choosing the right fiduciaries.
What Is a Fiduciary?
The law defines a fiduciary as “a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons).” Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for example a corporate trust company or the trust department of a bank, acts in a fiduciary capacity to the other one, who for example has entrusted funds to the fiduciary for safekeeping or investment. In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance, and trust in another whose aid, advice or protection is sought in some matter. The highest legal duty of one party to another, it also involves being bound ethically to act in the other’s best interests.
Choosing Your Fiduciaries
It is not uncommon for people to underestimate the importance of the fiduciary positions within their estate plan. Furthermore, people often appoint people to fiduciary positions based solely on the fact that they trust that person because it is someone within their inner circle, such as a sibling, spouse, or adult child. The problem is that while trust is certainly a necessary consideration when appointing a fiduciary, it should not be the only factor considered. All too often the underlying issue is a lack of understanding about the duties and responsibilities of the fiduciary position in question. To help you avoid appointing the wrong person to fiduciary positions within your estate plan, consider the following brief descriptions of what those positions entail:
- Executor – one of the decisions you will make when you execute your Last Will and Testament is who to appoint as the Executor of your estate. The Executor of your estate has a wide range of duties and responsibilities during the probate of your estate, such as managing estate assets and overseeing the entire probate process as well as reviewing and paying creditors of your estate. Eventually, the Executor will transfer the remaining estate assets to your chosen beneficiaries. How well your Executor performs the duties and responsibilities involved in the position will directly impact the probate process. Mistakes made by your Executor could cost your loved ones by reducing the value of your estate and adding unnecessary time to the probate process.
- Trustee – if you include a trust agreement in your estate plan you must appoint someone to be the Trustee. The Trustee is responsible for protecting and investing trust assets as well as administering the trust. Ideally, a Trustee should have at least a basic understanding of the applicable laws and financial concepts involved in administering a trust to ensure that the trust grows and that the beneficiaries actually benefit from the trust.
- Agent – you may also decide to include a general power of attorney or a specialized healthcare power of attorney in your plan. Once you appoint an Agent under a general power of attorney, you give that person the legal authority to act on your behalf in financial and/or legal transactions. Your Agent under a POA, for example, may have the authority to remove assets from your estate or enter into a contract in your name. That Agent has a considerable amount of power over your assets so choose wisely.
- Guardian – the only official opportunity you will have in your entire estate plan to nominate someone as Guardian for your minor children is found in your Will. Do not overlook this option and choose someone who you would trust with your most valuable assets of all – your children.
Please download our FREE estate planning checklist. If you have additional questions or concerns about choosing your fiduciaries, 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.