Choosing the Right Fiduciary

A critical part of your estate plan should be to prepare your appointed Fiduciaries now for their future responsibilities. A Fiduciary is anyone responsible for the custody or management of property belonging to others, such as an Executor, Administrator, Trustee, Guardian, or Conservator. If your estate plan is Will based, your Fiduciary will be your Executor. If your estate plan is Trust based, your Fiduciary will be your Trustee.  If you die intestate your Fiduciary will be your “Personal Representative,” who is appointed by the Probate Court. The person you nominate in your Will to look after your minor children is called a Guardian. As you can see, Fiduciaries serve in many different capacities and can potentially perform many different functions in the course of carrying out their duties. Great care should be used in selecting the right Executor, Trustee, Guardian, etc.

Upon your death your Fiduciary will have several responsibilities. The post-mortem responsibilities of your Fiduciary fall into three different areas of estate administration. Your Fiduciary’s responsibilities include collection and management of your assets (collectively called marshaling the assets); payment of your debts, taxes, and expenses; as well as administration and distribution of your assets for the benefit of your named beneficiaries.

These responsibilities require a high level of responsibility, honesty, and common sense, as well as a keen attention to detail. Your Fiduciary needs to make sure all i’s are dotted and all t’s are crossed. Fiduciaries should seek competent legal counsel to assist them in their endeavors. The scope of their responsibilities and authority will be articulated in the estate planning instruments, as well as governed by applicable state statutes.

People often choose their children to act as Executors for their estate. Parents should try to include their adult children who are their Executors when meeting with their attorney. If your children are familiar with your attorney they are more likely to ask for assistance when needed. Your estate planning attorney should be available to assist your Executor, Trustee, or Guardian in performing their functions.

The paramount responsibility of your Fiduciary is to protect and preserve your assets. This will include taking an inventory of the assets, insuring and safeguarding them, and determining their values as of the date of your death. You should keep records of your assets, along with any account numbers and statements, deeds, stock certificates, etc. It is important to make sure your Fiduciaries know where you keep your asset inventory, and the account statements, certificates and titles to back them up. The better you are at record keeping, the easier it will be for your Fiduciary to do their job.

After naming your Fiduciaries you should inform them of their role, and discuss your assets and wishes. Ideally you should discuss the job with them before you execute your Will. This way you can be certain these people are willing to accept the nomination.

If you have created a Revocable Living Trust be sure to fund the Trust (place assets in the Trust). If you have funded the Trust, keep up-to-date records of the Trust assets, as this will greatly ease the initial burden of collecting and inventorying your assets. Maintaining current financial records can save your Fiduciaries considerable time, and therefore money, in fulfilling their collection and management responsibilities. We hate to harp on this, but keeping organized records is the key to a smooth estate administration.

Once your assets have been marshaled and are under management, your Fiduciary must arrange for the payment of your legitimate debts, taxes, and expenses associated with the administration of your estate. Estate tax returns must be filed by the required deadlines, and many post-mortem planning opportunities, such as disclaimers and certain elections, must be timely made or you will lose them. Failing to comply with federal and state deadlines can cost your estate large sums of money in lost tax savings, as well as expose your Fiduciaries to personal liabilities. By missing certain deadlines your Fiduciary could be held personally liable for the tax liabilities of your estate. In some situations they could be vulnerable to lawsuits from creditors for failing to make timely payments, and from disgruntled heirs for failing to make timely elections, which, of course, will cost your estate more money defending against these actions.

Whether your estate plan ultimately provides for the distribution of your assets to your beneficiaries in one lump sum, in multiple distributions, or through ongoing Trust administration (to protect your assets for and from them), your Fiduciaries must ensure that accurate records are maintained and receipts obtained from each beneficiary. In fact, the failure of your Fiduciaries to account for all income, expenses and disbursements throughout each of the three phases of estate administration can subject them to civil and, potentially, criminal sanctions. As you can see, the right Fiduciary choice is critical. Even the safest car can crash when a fool is at the wheel.

Before you select and appoint Fiduciaries for your estate plan, or agree to serve as a Fiduciary for someone else, you should seek appropriate legal counsel. It is a huge responsibility. Serious thought should be given as to who you will select to act as your Fiduciary.