When it comes to planning your estate some of the most important decisions you need to make involve the choices of who will serve under your power of attorney (we’ll call them your Agent), who will serve as your Health Care Agent in your Health Care Directive, who will serve as the executor of your will (now called your Personal Representative), and who will serve as the Trustee of your trust or trusts. All of these positions are considered fiduciary positions. These positions require that those serving do only what is in your best interest and not in their own.
Over the years, many clients have sought to choose a relative or a close friend for one or more of these positions. That often makes the most sense. Beyond the issue of cost, they trust their relative or friend during life, and trust their judgment when the time comes to stand in their shoes, so to speak. However, the job can prove more difficult than either our client, or the relative or friend imagined.
A friend or relative serving as fiduciary must carry out the terms of your plan at the very time they may be grieving, and many times they are unfamiliar with the details of the job's responsibilities. They may not have enough financial knowledge to understand what's expected, and may miss important deadlines due to a lack of understanding. This can end up costing the estate some serious penalties. In a number of cases, fiduciaries have used assets they are charged to protect for their own purposes and benefit. Take our client Deborah (not her real name). She appointed her attorney/ brother as the Personal Representative of her estate and the Trustee of her life insurance trust. Within 14 months of her death, her brother had withdrawn substantially more than his share of the trust and estate. This left four beneficiaries without their share of the trust that Deborah had intended to go towards their college tuition. The beneficiaries petitioned for his removal, the appointment of a successor trustee, and asked for damages. The court granted their petition and entered judgment. Ten years later, the judgment has yet to be paid.
Some individuals may be tempted to use free or budget-priced online resources to help with Personal Representative or Trustee duties. Unfortunately, inexperienced Personal Representatives or Trustees may unwittingly believe using these software sites are all they need in order to complete their duties adequately. Just as TurboTax® does not replace the expertise of a good tax accountant, online personal representative-in-a-box tools are not a replacement for professional legal advice.
In some cases, clients with a trust might be better served by having a team of Trustees - with each one pulling from a different area of expertise or experience. If the trust is expected to last a long time or in cases where there are substantial assets, having more than one person managing the trust can be ideal. However, there can be downsides, too. Naming family members as Co-Trustees can lead to tensions, especially when children are equally named as Trustees. Naming too many Trustees can also cause problems if their roles and decision making processes are not clearly defined.
We recommend that clients consider these and other potential fiduciary issues. If you plan to name a Personal Representative or Trustee with no experience, we encourage you to schedule a meeting between the potential Personal Representative or Trustee and your estate planning attorney, even for a simple thirty-minute conversation, to discuss the expectations and obligations that go along with the job.
Being named a Personal Representative of an estate or Trustee of a trust is an enormous responsibility, and you need to be aware of potential pitfalls. It is much easier, and less costly, to resolve potential fiduciary issues at the estate planning stage rather than after the fact.
If you have a specific case or a question, don't hesitate to contact me.