Several years ago, I was presenting at a seminar for attorneys and other professionals and we were discussing “fiduciaries”, such as trustees, agents on a power of attorney, etc., and the various responsibilities involved. One of the attendees raised his hand and asked a question. He seemed very distressed, but eager for advice. He explained that his parents had named him as the Trustee of their trust many years ago. They explained that he, as a lawyer, should be well equipped to handle the settlement of their estates after they died and they trusted him implicitly. Years passed, and one of his siblings had apparently persuaded his parents to change their estate planning documents and name HER as the Trustee and agent on the power of attorney. She was not a lawyer, was not as financially savvy as he was, and was probably not as well equipped to handle the complexities involved in the settlement of this estate. He frankly had no idea why they changed their minds about naming him as the Trustee. He asked me (and the audience as well) what he should do now. Not intending to be dismissive of his feelings at all, I nonetheless immediately blurted out: “Take your sister out to dinner and thank her!” The audience giggled, I assume in no small part based on their own experiences as serving as a trustee, agent on a power of attorney, or personal representative/executor for another family member or friend. For convenience, I will refer to these roles collectively as the role of a “fiduciary”.
Why is it so burdensome to serve as a fiduciary? One way to understand some of the issues involved is to review the characteristics we look for in a fiduciary. When clients ask us whether or not they should name a family member as a fiduciary, we generally review five characteristics that we recommend a fiduciary have, and then we leave them with a final thought (which I mention at the end of this post). The five characteristics are as follows:
1. Financially Savvy: A fiduciary must be prudent and diligent, and committed to carrying out the principal’s wishes. We tell clients that this does not mean that the person you name has to be able to properly invest assets or file an income tax return by himself. However, the person should be able to find a qualified financial advisor/CFP to invest assets, as well as a
competent CPA. Your fiduciary should be able to recognize the need to sell your concentrated position in one company’s stock before the market crashes once he is appointed, and should know to not liquidate your retirement accounts and invest immediately in annuities (even though his next door neighbor may very strongly recommend that).
2. Trustworthy: A fiduciary has a duty to honor the terms of any document granting him authority to act on another’s behalf (a trust, will, power of attorney, etc.). He must not “self-deal” without authorization (for example, he can’t live in mom’s house rent free after she dies). Family members need to have confidence that the fiduciary inventoried the gold coins in the safety deposit box, and didn’t walk off with mom’s ring because mom “promised” it to his wife before mom died.
3. Gets Along Well with Others: The fiduciary has a duty to communicate with the beneficiaries and keep them informed. If you have a family member who is very financially savvy, but is a curmudgeon, do you want to force your children to communicate with the curmudgeon about money for a potentially extended period of time? Can your fiduciary navigate the division of personal effects (including the light up maple tree, for loyal readers!)? Can your fiduciary handle regular phone calls asking about the status of things, or repeated requests for money, or even threats?
4. Has the Time to Serve: The fiduciary has a duty to protect all property under his supervision, and generally must provide reports to the beneficiaries. This varies by the role and by state law, but there is a general duty to keep a beneficiary informed so that the beneficiary can protect his interests. The fiduciary has to carry out the terms of the governing document (the will or the trust, for example), must distribute assets, provide accountings, pay expenses and taxes, etc. In this post, we have only mentioned a few of the many duties and burdens a fiduciary has and yet I’m ready for another cup of coffee already! If you are lucky enough to have someone you trust who is financially savvy and trustworthy, with a good personality, the chances are that that person probably has a successful career and/or busy family life, and might not be able to add in another significant responsibility like serving as a fiduciary.
5. Is Willing to Serve: After learning about all of these characteristics, and duties, many (savvy) potential fiduciaries politely decline the opportunity to serve, no matter how much they may love and cherish the person asking them to serve.
I’ve been told many times that this person I’m describing is a unicorn!
What characteristics did I not mention? Gender and birth order should not influence whether or not you select one individual over another to serve as fiduciary. We sometimes hear from a client something to the effect that the client wants to name “X” as a fiduciary because “X” is his oldest son. Later in the conversation, details might be shared that “X” had to file for bankruptcy again when X’s criminal defense attorney billed X for more than the engagement agreement for handling X’s trial on embezzlement charges. Even though X might have a good personality (and is the first born son), he is probably not a good choice as a fiduciary.
So, what is the final thought I hinted at above that we mention to clients who are considering naming a family member as a fiduciary? Thanksgiving will never be the same if you name one of your family members as the fiduciary over other family members’ interests (for example, if you name your sister as the trustee of your child’s trust). Instead of interacting as aunt and niece, they are now loan officer, career counselor, banker, etc. and customer, with the highest legal duty the law recognizes imposed on their relationship. That’s not to say that we don’t recommend naming family members as fiduciaries. Sometimes it can be a very reasonable and appropriate choice. However, it’s important to understand what you are asking your family member to commit to and your family member should remember the adage we started with: “no good deed goes unpunished”!
If you have any questions about the choice of a qualified fiduciary, please feel free to contact our firm, or another qualified estate planning attorney.
Post by: Vickie R. Wilcox, J.D., LL.M.
Disclaimer: These materials are designed as a general overview and should not be relied upon for legal or tax advice. Please consult a qualified attorney and/or tax advisor for compliance and up-to-date information and advice specific to your circumstances.