Naming Your Fiduciaries
Duties of Executor or Personal Representative. The executor, also known as a personal representative, handles the probate of an estate, typically directed by an attorney. The executor is responsible for collecting the assets, determining and paying the debts, preparing the tax returns (final income tax returns, federal estate tax return, state inheritance and/or estate tax returns), preparing court accounts and making distribution of the assets to the beneficiaries. Unlike a trustee, an executor typically serves for only a year or two.
Typical choices. Many clients name their spouse, adult child or sibling as executor. This is often a good decision. However, it can also make sense to consider a professional as executor. Professionals bring independence, impartiality, lack of emotional bias, knowledge of financial affairs and general expertise in handling estates and trusts. On the other hand, they charge fees that a family member might waive, and they might not be as familiar with your wishes as would someone closer to you. Common sense, conscientiousness and honesty are more important in an executor than sophisticated financial and legal knowledge.
Ideally, your executor should be trustworthy, organized, accurate, willing to seek help from professionals, knowledgeable about the estate and willing to do the job.
Duties of Trustees. A trustee, unlike an executor, might serve for many years and will be asked to exercise discretion in distributing funds and to make sure that legal, investment and accounting matters are handled in accordance with the trustee’s fiduciary duty. The trustee does not specifically need legal, investment or accounting knowledge because the trustee can retain professionals to guide him or her in those areas. The key characteristics of a good trustee are integrity and judgment, especially the judgment to know what is in the best interests of the specific beneficiaries and to try to determine what you would do in similar circumstances. Trustees need to be responsible, organized and mature.
Typical choices. Many people find that a family member, adult child, or close family friend is the person they trust to carry out the terms of their trusts. This may be right for you. A corporate trustee can also be an excellent choice. This is a subject we cover in an estate planning discussion. You should also name alternates. Co-trustees can be another approach.
More questions to ask
- Trusts often last for many years and being a trustee is a large responsibility. Is the person you’re thinking of willing to take on that responsibility for many years?
- Does naming this person as trustee make sense as a business decision? Trustees have investing, accounting, and legal responsibilities. If your child or sibling is trustworthy but does not understand money, he or she may not be the best choice. A trustee can choose to hire professionals for these jobs, though, so the key is whether he or she will have good judgment in knowing when to seek professional assistance.
- Do you trust this person to follow legal requirements like filing tax returns on time, sending notices to beneficiaries, and keeping up with changes in the law that might alter his or her responsibilities?
Considering a professional trustee
There can be good reasons to choose a professional, such as your bank or trust company, to be your trustee. Professionals are likely more experienced in investing. They will be knowledgeable about legal requirements and changes in the law. They can reduce family drama by bringing objectivity to a situation. Also, a family member might resign as trustee, die, or become incapacitated, at which point a new trustee must be appointed. Corporate trustees don’t get sick and seldom quit, and they can devote their full time to this important job rather than trying to find time to do it.
Corporate trustees charge a fee, but they can have an extremely valuable role to play in many estate plans.
Who should be my health care agent?
If you are incapacitated and cannot express your wishes, a health care agent, also called a surrogate, has the authority to make health care decisions for you. You can grant your agent the authority to give, withhold or withdraw consent to medical, surgical and psychiatric treatments, nursing home care, hospitalization, home health care treatment and life support decisions. This way, you have planned ahead of time who will have the power instead of taking the chance that those decisions will have to be made by a court-appointed guardian.
Typical choices. Most people name their spouse, siblings, adult children or close friends to serve as their agent. It is not necessary that the agent have medical knowledge. It is important that the agent have good judgment and be willing and able to honor your wishes.
Who should be my agent for my financial power of attorney?
A financial power of attorney allows you to have someone you trust, your agent (sometimes called attorney-in-fact), to handle your finances. It can be used when you are unable to act on your own behalf or would prefer to have someone else, such as a trusted child, manage your finances. If you are ever disabled for a long period of time, a power of attorney is necessary to manage bank accounts and pay bills. It is better to choose who will take on this responsibility ahead of time rather than having your decisions made by someone appointed by the court.
Granting a power of attorney does not mean you are giving up the power to act on your own behalf. You can limit the power to a particular activity (e.g., selling your home) or grant your agent authority to act on your behalf in a wide variety of situations. Typically, Taft holds the original power of attorney and only releases it if we are notified that you have become incapacitated.
Typical choices. Many people name their spouses or one or more of their children as their agents, and this is often a good decision. If you are looking for someone else to act as your agent, the most important thing to keep in mind is that this person will be responsible for making decisions for you if you become incapable of making them yourself. You should choose someone you fully trust, who has your best interests at heart and who is willing to take on a great deal of responsibility.
You do not have to name the same person as agent for health care and finances.