Many people choose to name trusted friends or family members as fiduciaries in their estate planning documents. However, this can be a mistake.
Fiduciaries are responsible for carrying out a variety of tasks that require special attention to detail. They are also given guidance by law and their estate planning documents. Learn more about guidelines on choosing fiduciaries.
1. Look for someone with the right skills
A professional fiduciary is used to handling all elements of trust and estate administration on a regular basis. They are also generally well-equipped to handle unforeseen challenges that may arise.
Additionally, a professional fiduciary should be able to work with beneficiaries in a reasonable manner, which can help minimize disagreements and avoid costly litigation. There are many different fiduciary roles that can be included in an estate plan, such as a Personal Representative, Trustee, Guardian and/or Conservator, and Attorney-in-Fact. Each role comes with its own set of responsibilities and duties. The state of Washington requires that all fiduciaries meet certain minimum standards, such as being over the age of 18 and not having been convicted of a felony or crime of moral turpitude. Luckily, it is an easy process to amend your estate planning documents to change fiduciaries if necessary.
2. Don’t limit your choices to close relatives
While many people choose a family member to serve as their trustee or agent under a power of attorney, this is often not a good idea. It can lead to conflicting fiduciary duties and resentments among beneficiaries.
For example, if a child is named as a fiduciary but does not get along with his or her siblings, that could lead to claims that the child has breached his or her fiduciary duty by giving preference to one sibling over another. This can exacerbate family tensions and may even lead to litigation.
Instead, consider choosing a licensed professional in the trust and estate administration business or a corporate fiduciary such as a bank or trust company. This can eliminate conflicts of interest and help maintain family relationships.
3. Don’t name more than one person to serve as a fiduciary
A fiduciary’s job is to exercise their powers in good faith and without regard for personal gain. This means that they must make decisions based on the facts, and they must also keep meticulous records of their actions.
It is not recommended to choose more than one person to serve as a fiduciary. This can cause conflicts of interest and may result in infighting between family members over who will control the estate or trust.
It is often more practical to select a family member to be a Fiduciary and have a professionally qualified fiduciary (such as a bank or individual) act as co-fiduciary. This allows the family member to provide a family point of view and the professionally qualified fiduciary can handle investment, administrative and record keeping functions.
4. Don’t name a fiduciary based on age or gender
Professional fiduciaries such as a money manager, financial advisor, banker or insurance agent are required to adhere to the fiduciary standard. This means they must put the interests of their clients ahead of their own and do so without compensation or conflicts of interest.
Those that serve as Executors, Trustees, Conservators or Agents under Durable Powers of Attorney are fiduciaries for both financial and health care decisions. This makes the choice of these individuals an important part of your estate plan.
We are often asked to advise clients on whom to name in these roles. In many cases, selecting a fiduciary based on age or gender can be a bad idea. This is because, for example, an older person might not be around when their powers are needed and their heirs might find them a difficult fiduciary to work with.
5. Don’t name a fiduciary based on location
A comprehensive estate plan typically includes a Will, Power of Attorney and Trust. Each of these documents names a fiduciary who will carry out duties and instructions when the estate owner becomes incapacitated or deceased.
Choosing the wrong person can lead to serious problems. Many of these disputes arise from sibling rivalry, when one child is named as the Executor or Trustee and the other children become unhappy with their treatment by the fiduciary.
The best way to avoid such problems is to name someone who does not live close by. A fiduciary must have access to records, and they must be able to travel for court proceedings. It’s also possible to name a corporate fiduciary instead of an individual in some cases, if the trust assets are substantial enough.