TIPS ON SELECTING A FIDUCIARY
By: Sandra L. Clapp
Sandra L. Clapp & Associates, P.A.
The term “fiduciary” is commonly defined to be a person who holds a legal or ethical relationship of trust with one or more other parties to take care of money or assets or the care of another person. A person designated to serve in a fiduciary position undertakes legal duties and obligations to properly carry out the role of the specific position. During the estate planning process there are several fiduciary positions that are important to the success of the legal documents being established. Because of the tremendous authority of the fiduciary, the selection of the right person to serve in these roles is one of the most critical decisions you will make to insure the success of the documents being established. The legal documents and structure can be perfectly outlined, but if you select the wrong person to carry out these roles the success of your plan is jeopardized or may be entirely destroyed.
Common positions in a standard estate plan include the following:
- Financial Power of Attorney – During lifetime you can delegate authority to an “agent” under a power of attorney to manage property and financial affairs. The fiduciary role of agent under a financial power of attorney is governed by the power of attorney and law to be carried out in the best interest of the “principal” (the person granting the power of attorney).
- Medical Power of Attorney – During lifetime the delegation of authority to make medical decisions is also granted under a power of attorney expressly for medical purposes. This fiduciary position is also an “agent.”
- Personal Representative – After death, the court may appoint a personal representative (executor) to administer the decedent’s estate. The fiduciary duties of the personal representative include (a) diligently inventorying and winding up the estate, and (b) accounting to the beneficiaries. The duties are outlined in the will, by statute, and in case law.
- Trustee – A trustee may be designated to manage assets in trust for a minor or disabled child. The duties of the trustee include (a) properly investing and diversifying the trust assets, (b) accounting to the beneficiaries, and (c) being impartial and treating all beneficiaries fairly.
In selecting the fiduciary to serve in each position, consider the following:
- What specific role will the fiduciary serve and what are the duties relating to that role? You do not want to put a financially irresponsible or disorganized person in charge of any financial matters.
- Does the person have medical beliefs that differ from yours? If so, you would not want that individual making your medical decisions.
- Will the person be fair, reasonable, and rational in dealing with all beneficiaries? If your children don’t get along, it would not be prudent to place one child in a position of authority over the other child.
- Is the person honest and can be trusted to properly handle the assets? These fiduciary positions are not monitored by any court unless an issue arises and then it may be too late to correct.
- Does the person have training, skills or ability needed for the position so the duties are not overwhelming?
When selecting a fiduciary, do not be limited to selecting from children or family members. Look among your friends, advisors, and even professionals to select the best person for each fiduciary role. The success of your estate plan is dependent upon your selection of the right fiduciaries because any plan can be undermined by selecting the disorganized, dishonest, or irresponsible.
This article is not intended to replace legal or tax advice applicable to your situation and should be used only for informational purposes.