Choosing Your Champions: A Guide to Selecting Your Trustee, Personal Representative, and Power of Attorney
When crafting your estate plan, you make critical decisions about the distribution of your assets and the care of your loved ones. But just as important as what you decide is who you entrust to carry out those wishes. Selecting your trustee, personal representative, and agent under a power of attorney are among the most significant choices you'll make. These individuals will be your champions, stepping in to manage your affairs when you no longer can.
While the immediate impulse may be to choose a close family member or friend, it's vital to consider that the best choice isn't always the most obvious one. This guide will help you navigate the common pitfalls, understand who can be trusted—including professional fiduciaries—and recognize potential conflicts of interest.
The Key Players: Understanding the Roles
Before diving into the selection process, it's crucial to understand the distinct responsibilities of each role:
● Trustee: The trustee is responsible for managing the assets held within a trust. This can be a long-term role, sometimes spanning generations. Their duties include investing trust assets, making distributions to beneficiaries according to the trust's terms, and handling administrative tasks like tax filings.
● Personal Representative (or Executor): This individual is appointed in a will to wrap up your final affairs. Their responsibilities include gathering your assets, paying your debts and taxes, and distributing the remaining property to your beneficiaries in accordance with the terms of the will. This is typically a shorter-term role than that of a trustee.
● Agent under Power of Attorney: This person, also known as an "attorney-in-fact," is authorized to make financial and/or healthcare decisions on your behalf while you are still alive but unable to make these decisions yourself. This power can be effective immediately, or "spring" into effect upon your incapacity.
All of these roles are roles of a “Fiduciary.” A fiduciary is an agent who has the obligation to act on behalf of the principal - that is, you.
Common Pitfalls to Avoid in Your Selection
Choosing the right person for these roles is paramount to ensuring your wishes are honored. Here are some common missteps to avoid:
● The Emotional Choice: Automatically defaulting to your eldest child or a close sibling can be a mistake. While your bond is important, their skills, availability, and emotional capacity are more critical for these roles.
● Underestimating the Emotional Burden: Appointing a loved one forces them to wear two hats: one as a grieving family member and another as an impartial financial administrator. Asking a spouse, child, or friend to navigate complex financial duties while mourning can be an overwhelming burden that can strain relationships and lead to conflict.
● Ignoring Financial Acumen: Your chosen fiduciary will be handling significant financial matters. Appointing someone who is financially irresponsible or lacks financial literacy can jeopardize your estate.
● Underestimating the Time Commitment: These roles are not merely honorary. They require significant time and effort, from corresponding with beneficiaries and financial institutions to keeping meticulous records. Be realistic about your candidate's availability and willingness to take on these tasks.
● Overlooking Age and Health: Consider the age and health of your potential fiduciary, especially for a trustee of a long-term trust. You should also name successor fiduciaries in case your primary choice is unwilling or unable to serve.
● Failing to Discuss Your Decision: It's essential to have a transparent, frank conversation with the person you intend to appoint. Ensure they understand the responsibilities and are willing and able to take on the role.
Who Can You Trust? Family, Friends, and Professionals
The ideal candidate for these roles is someone who is trustworthy, organized, responsible, financially literate, and a good communicator. While family and friends are often the first consideration, it's crucial to weigh the benefits of appointing a professional.
Appointing a Family Member or Friend
Choosing a loved one who knows you and your family’s dynamics can be a great comfort. They have a personal stake and may not charge for their services. However, this is the very area where issues can arise. They may struggle to act impartially, especially if they are also a beneficiary: that is, if they stand to gain something from your will or trust, or they have closer relationships with some beneficiaries than others, your fiduciary’s impartiality may be compromised. Saying "no" to a sibling's request for an advance on their inheritance can be incredibly difficult and may cause irreparable family friction, for example. Another common conflict is where a loved one is appointed trustee and also sole beneficiary and is required to distribute the trust assets in intervals according to the terms of the trust: oftentimes, ensuring compliance can be difficult in this scenario.
The Professional Option: Why a Neutral Trustee Can Be a Gift to Your Family
Sometimes, the most loving act you can perform for your family is to appoint a neutral third party. Even with the most trusted individuals, the potent combination of grief and money can complicate things, straining relationships and clouding judgment.
A professional or corporate trustee (like a bank's trust department, an attorney, or an accountant) is an impartial expert. Their job is to administer the trust or estate according to your specific instructions, without the emotional entanglement that a family member would have. Their professional experience can alleviate strains in emotion, ensure proper communication with beneficiaries, and adhere to the terms of the will or trust.
Consider a professional fiduciary when:
● You want to preserve family harmony. A professional trustee takes the pressure off your loved ones. It allows your spouse, children, and friends to grieve and support one another without the added burden of financial management and the potential for conflict.
● Your estate is complex. If your assets include a business, extensive investments, or real estate holdings, a professional brings the necessary expertise to manage them effectively.
● You anticipate conflict. If there is any history of discord among your beneficiaries, a neutral third party is essential to ensure fairness and prevent disputes.
● You need longevity. For trusts designed to last for many years, a corporate trustee provides a level of stability and continuity that an individual cannot guarantee.
While professionals charge a fee for their services, the cost often pales in comparison to the potential for family disputes, mismanagement, and legal fees that can arise when an ill-equipped family member is in charge.
Navigating the Minefield of Conflicts of Interest
A conflict of interest arises when your fiduciary's personal interests are at odds with their duty to act in the best interests of your estate and beneficiaries. Recognizing and avoiding these conflicts is vital.
Examples of Conflicts of Interest:
● Self-dealing: A trustee selling trust property to themselves at a below-market price.
● Favoritism: A trustee who is also a beneficiary making disproportionate distributions to themselves while neglecting other beneficiaries. This can happen unintentionally when a grieving spouse feels they need more funds than the trust allows.
● Influencing Decisions for Personal Gain: An agent under power of attorney making financial or healthcare choices that could increase their own inheritance.
A professional fiduciary is bound by strict legal and ethical standards to avoid such conflicts, providing another layer of protection for your estate.
Making Your Decision with Confidence
Choosing your trustee, personal representative, and agent is a decision that deserves careful consideration. By understanding the roles, avoiding common pitfalls, and thoughtfully weighing the benefits of appointing a loved one versus a professional, you can select champions who will honor your legacy. Appointing a professional can be a profound gift to your family, allowing them to focus on what matters most during a difficult time. It is always advisable to discuss your choices with an experienced estate planning attorney who can provide guidance tailored to your specific circumstances.
Schedule your consultation with Atkins Law Offices to discuss your trusted individuals, your estate planning needs, and get on track to ensuring your future - and the future of your loved ones - is secure.