01 Jan Choosing the Right Fiduciaries: Who Will Carry Out Your Wishes?
Understanding Fiduciaries, Executors, Trustees, and Guardians
What does it mean to be a fiduciary in estate planning?
A fiduciary is a person you choose to make important decisions for you. Areas of decision making may include managing your assets, carrying out your wishes during incapacity or after death, or caring for your children. Fiduciaries can include executors, trustees, guardians, and agents named in the power of attorney.
Being a fiduciary is a serious responsibility. A fiduciary is held to a high legal standard of acting solely in the other party’s best interest. As John says in the episode, it can feel like “the greatest honor nobody wants” because it is often time consuming, administrative, stressful, and emotionally heavy.
Why does no one want to be an executor or trustee?
Most people who have served once do not want to do it again. Executors and trustees carry a heavy burden, often over many months or even years.
When John polls groups, he speaks to and asks who has served as a fiduciary; many hands go up. But when asked whether those same people would serve again, the consensus is always, “No.” It’s because the work can be slow, complex and overwhelming.
What is the key fiduciary roles in an estate plan?
People often confuse these roles, so here is a simple breakdown:
Executor (or Personal Representative)
While the terminology may vary depending on state law, an executor is a court-appointed fiduciary who manages your estate after death and carries out the directions in your last will and testament (“will”). The executor secures assets, opens probate, pays bills, handles taxes, and distributes assets. If you do not have a will and your probate estate passes by intestate succession, this fiduciary may be called an administrator. In some states, an executor or administrator may be referred to as a personal representative.
Trustee
A trustee manages assets held in a trust. A trustee’s duties generally mirror those of an executor, but a trustee is not appointed or overseen by the court in trust-based estate plans. A trust-based estate plan avoids probate and makes administration faster and easier.
Guardian
A guardian cares for your minor children and is appointed by the court, although you may nominate your choice as to who will serve as guardian. Guardians are responsible for your minor children’s wellbeing but not for managing their inherited assets.
Agent or Attorney-in-Fact under a Power of Attorney (Financial or Medical)
The fiduciary appointed under a financial or medical power of attorney may be called an agent or attorney-in-fact. The agent makes decisions in your best interest, to the extent of the powers included in the power of attorney. The agent’s power to act may be granted immediately upon your signing of the power of attorney, or it may be “springing” and come into effect only upon your incapacity (or another trigger you choose). Your agent’s authority ends at your death.
What should I expect if I am named an executor of someone’s estate?
Expect spending significant time and having significant responsibility. Executors must:
- Secure and identify all assets
- Work with an attorney
- Open a probate case
- Locate financial accounts, insurance, records and debts
- Communicate with heirs
- File tax returns and pay final expenses
Many executors describe it as a “CSI investigation” because you must piece together the financial life of the person who died, sometimes without clear documentation.
How long does it take to settle an estate as an executor?
On average, one to two years. A fast administration might be done in twelve months, but many take longer because you must wait for court and attorney timelines, tax filings, and the full marshaling of assets.
What makes serving as trustee easier than serving as an executor?
Trustees can act almost immediately without going through probate because assets are already titled in the trust’s name, and trustees in a trust-based estate plan are not appointed by the court.
For example, in the episode, John reflects on a widow’s experience who was able to continue operating an LLC within ten days of her husband’s death because the trust already owned her husband’s LLC. Without trust, the business would have been frozen until the court appointed a fiduciary to continue operating the business.
Why is a trust-based plan often better than a will-based plan?
A trust:
- Avoids probate
- Allows immediate access to assets
- Prevents delays of continued business operation or control of complex assets
- Can provide a long-term asset administration and protection structure for children and future generations
A will-based plan, to be effective, requires probate, which is public, slow, and often more expensive than trust administration.
How do I choose the right Trustee?
Do not choose someone only because you love them. Choose someone who has:
- Time to administer your assets
- The ability to stay organized
- Good judgment
- Willingness to serve
- Honesty and integrity
- Ability and willing to organize required professionals
- A willingness to follow directions, which may not be popular with survivors or beneficiaries
For example, many people say, “My mom should be my trustee, she loves my kids.” But she may not have the time, stamina, or skill to handle a complex list of accounts, insurance policies, properties, and ongoing decisions. She might be a wonderful guardian, but not the right trustee. If your financial life is complex and you have a high net worth, it is important that your trustee is capable and comfortable dealing with large a large sum of money and complex assets.
Should the same person be both guardian and trustee?
As a general rule, we recommend that a guardian and trustee are different people, as a “check and balance.” It is part of the trustee’s duty to ensure that trust assets are used only for the benefit of a named beneficiary. Naming the same person in both roles may create a conflict of interest, to your minor child’s detriment.
Can I name different people for medical and financial attorney-in-fact within my power of attorney?
Yes, you can name different people for these two different roles. Most married couples, the spouse is named as the attorney-in-fact for both medical and financial. Our recommendation is to name the individual best suited to serve you, as your attorney-in-fact, for either role.
What makes a great fiduciary?
A great fiduciary is someone who has:
- Integrity
- Time
- Administrative skill
- Wisdom to make long-term choices
- Emotional steadiness
- Ability to follow instructions
- Willingness to seek professional help
Most importantly, they understand that these roles may last a long time. Attorney-in-fact and Executors can serve for years, and a Trustee can serve for decades.
When should I consider using a professional fiduciary?
Use a professional when you:
- Have complex assets
- Expect conflict among heirs
- Need long-term trust management
- Have a complex estate plan
- Do not have someone available, who is well suited
- Want continuity for many years
Professionals can bring experience and neutrality, especially when strategy and administration must work together.
How do fiduciaries make strategic decisions for long-term trusts?
Trustees have various duties to the current beneficiaries, which are called current income beneficiaries, and long-term beneficiaries, which are called remainderman. These responsibilities are taken into account when trustees make decisions about distributions, investments, pay expenses, and make tax payments. Ideally, a trustee takes the various characteristics of the trust, the family, and beneficiaries into account when making long-term decisions. If the trustee makes wise strategic decisions, they can save a family millions of dollars in income and estate tax, and result in a greater impact for future generations.
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