Estate planning can be difficult and complex. As an estate planning attorney in the Carolinas, one of the hardest decisions for many people is choosing the fiduciaries that they need to name in their various documents. In fact, uncertainty as to the selection of guardians, trustees, executors and other agents is the biggest factor in keeping people from actually finishing their estate planning documents once they have started the process.
Deciding who should manage your wealth and care for you and your children after you become incapacitated or have passed away can be incredibly stressful. Not all of us have an obvious choice for whom to name. Having said that, failing to execute documents because of uncertainty in this area is incredibly unwise. Remember, perfect is the enemy of the good – and when it comes to having an up-to-date estate plan in place, good is always better than nothing!
Before reviewing specific positions that you will need to fill, it is worth mentioning that it is generally inadvisable to name joint fiduciaries. Many people want to name their children jointly as agents, so as not to hurt the feelings of any one child, but naming co-agents can make administering your affairs more difficult. This is because, in most cases, each agent will have to approve every decision made, and multiple signatures will be required in order to execute even simple transactions. If your agents cannot agree on a particular matter, it may be impossible for them to act.
Instead, it often makes sense to name some or all of your children as agents or alternate agents but to pick the order in which you would want them to serve. Of course, you will need to discuss your particular situation with your estate planning attorney when crafting your documents.
Let’s review key fiduciary positions you may need to fill in your estate plan.
In my experience, choosing a healthcare agent is the easiest decision for most people. Who do you want to make medical decisions for you if, and only if, you cannot make them for yourself?
If you are married, your spouse is likely the natural choice, unless he or she doesn’t have the mental capacity or personal constitution to be able to handle such decisions. You still need to name at least one alternate agent in case your spouse has died or is otherwise unable to serve. You and your spouse do not need to name the same alternate agents.
If you are single, you will need to think about both a primary agent and at least one alternate. Generally, people want healthcare decisions to be made by blood relatives, though in some cases, a close friend or a family member of a spouse can be appropriate. While your lawyer or CPA might consent to being named as your trustee or executor, it’s unlikely that he or she will want to serve as your healthcare agent.
Regardless of whom you select, it is critical that you discuss with your named agent and alternate agents your wishes with respect to healthcare treatment, especially when it comes to end-of-life decisions! No agent wants to guess as to what you would have wanted.
Durable Power of Attorney
Your agent under a durable power of attorney will have a broad power to manage your financial affairs for your benefit. This power is generally meant to be used if you are incapacitated, but in some cases, it can also be used for convenience while you are of full mental capacity.
While a spouse or a child could be a natural choice, some people (especially those who are unmarried without children nearby) will want a professional or trusted financial advisor to assume this role. If you become incapacitated, your agent (sometimes called an “attorney-in-fact”) may have to handle bill payment, negotiate with your care providers, and/or deal with potential creditors you may have. It is important that the person you choose knows these responsibilities.
Personal Representative (i.e., Executor)
After your death, your personal representative will be responsible for collecting your assets and distributing them in accordance with the terms of your will.
As a practical matter, your personal representative does not need to be an expert in probate or estate settlement, since he or she can hire an attorney to handle the paperwork that may be required by the probate court. Additionally, since many assets now pass automatically by way of beneficiary designations and “transfer on death” provisions, this job is often simpler than it was in the past. However, your executor must still secure your residence, make sure that your personal items get transferred properly or sold, and manage many of the interpersonal family dynamics that will arise after your death.
While many people used to name banks or trust companies to fill this role, we generally advise naming a family member or trusted friend with the expectation that such person will seek legal counsel as needed to fulfill his or her fiduciary responsibilities to your estate.
If you are leaving wealth for your spouse, children or other family members, you may well use a trust to protect those assets after your death. In such case, your selection of the trustee who will invest and distribute trust assets for your named beneficiaries is crucial. (This role is especially important if you have younger children.)
While your trustee can hire investment advisors and attorneys to help make decisions about trust management, the trustee is ultimately responsible, and personally liable, for managing the inheritance you leave. Expecting your sibling (for example) to assume such an important and challenging role may not be fair to him or her, even though that sibling would likely agree to do it for you.
Additionally, while all trustees are entitled to compensation, many times, family members do not charge to serve. However, in some cases, paying a professional to act as trustee may be the better choice. Trustee selection should be discussed in detail with your estate planning attorney.
In case you pass away while one or more of your children is a minor, your will should nominate a guardian to care for that child. Ideally, a trustee will manage the money you leave, but the guardian is responsible for the actual upbringing of your minor child. The guardian makes sure your child gets to school, attends church if that was important to you, and is otherwise cared for on a day-to-day basis.
Creating a comprehensive estate is an important, and often complex, undertaking. In this article, we are just scratching the surface of the issues you will need to consider when selecting fiduciaries under your estate plan. If you would like to discuss these issues further, let us know. Schedule a complimentary, no-obligation conversation with the Global View team to see how we can help.