Choosing fiduciaries is crucial to estate planning. In any one estate plan, there could be a variety of roles that a fiduciary might fill, such as an executor, agent, or trustee. It need not be a person either; a fiduciary can be a person or an organization, depending on what fits the role best.
An executor is probably the most well-known fiduciary in an estate plan. An executor is named in the will and carries the responsibility of managing the decedent’s estate and carrying out their wishes following death. The executor also oversees probate, files tax returns, pays off all debts, including administrative expenses and taxes, and distributes assets to beneficiaries.
An agent is a person named under a durable power of attorney. As fiduciaries, they are authorized to act on an individual’s behalf. That can be in regard to financial matters or those concerning health care. For example, an agent has the authority to make financial or end-of-life decisions.
A trustee is a fiduciary authorized to manage a trust’s assets. In other words, the trustee can make investment decisions — anything from choosing the types of investments to timing the purchase and sale of them, or distributing assets for the health, education, maintenance, and support of a minor or incapacitated person. When it comes to distributing the trust’s assets, the trustee is charged with that as well. To hold the trustee accountable, the trustee typically has to provide periodic accounting to beneficiaries about the trust’s management.
Beyond their specific responsibilities, fiduciaries have two crucial duties: care and loyalty. Duty of care means that fiduciaries must make well-researched and informed decisions, and duty of loyalty dictates that they must not have undisclosed conflicts of interest or use their role as fiduciaries to benefit themselves.
Given how important the role of a fiduciary is and how the responsibilities can vary widely among the roles they serve in an estate plan, it is important to choose wisely. Here are five issues to consider.
1. Consider who is best suited for which role.
Multiple roles might qualify as fiduciaries, such as executors or trustees. There are qualities that someone occupying any fiduciary role should have, regardless of which fiduciary role they are occupying. Any fiduciary should be trustworthy and responsible in order to ensure that your wishes are met to the best of their ability and that you can rely on them.
They should also be organized and available to take on the role. So be sure to choose someone who can execute their role well but also has the time to do so, as the process can often be time-consuming.
There are also specific qualities for specific fiduciary roles. For a trustee, for instance, experts recommend choosing someone who knows how to invest over the long term. Also, be sure to choose someone who has the knowledge and time to do this.
2. Consider conflicts of interest and relationship dynamics.
Duty of loyalty is an important part of managing a beneficiary’s finances. Any fiduciaries you choose must disclose their conflicts of interest so that you are protected from any ulterior motive they might have or situations that might arise in the future.
When choosing a fiduciary, be sure to choose someone who is not likely to use their role as your fiduciary to be self-serving. In addition, consider the dynamics of any fiduciaries you choose. Make sure that the people you designate will be able to work together efficiently so that your wishes are met.
Considering these issues protects you and your finances. It also protects the person or people you designate from potentially coming into legal trouble if they tend to act selfishly or might have potential conflicts.
3. Make sure the person is eligible.
In addition to the various duties that a fiduciary has to uphold, there are also several other criteria that the state of Washington mandates they meet. Personal representatives (also known as executors) and trustees must be above the age of 18, of a sound mind, and cannot have been convicted of a felony or a crime involving moral turpitude (crimes that are deemed immoral or unethical, such as fraud).
Additionally, if the person you choose lives outside of Washington state, they might need to file a bond and appoint an agent, depending on their role and circumstances. If your fiduciary lives out of state, be sure that they can undergo this process, as well.
4. Consider a Professional or Organization
If you aren’t sure that your friends or family would be the best for a fiduciary role, or if you are not sure what all is involved with a specific role, consider talking to a professional about your choices. There are a variety of advisors that can help you figure out what choice is best for you and whether appointing a person or an organization to a specific role is best.
Especially if your estate is more complicated, talking to a Washington estate planning attorney can be a great place to start. When looking at potential professionals or organizations to act as your fiduciary, be sure to look for organizations and people who are bound by fiduciary duty so that they are legally bound to work in your best interest.
5. Meet with the Person or Organization
Regardless of if you decide to appoint a family member or professional as a fiduciary, be sure to meet with them beforehand. This way, you can explain what you want and ensure that they understand your wishes and what their role entails.
You can also use this time to ask any questions that might be relevant to your estate planning, such as costs for using their services, their status as a fiduciary, any potential conflicts of interest, or anything else that might be specific to your case. Finally, you can use this opportunity to address any questions or concerns they might have.
Find a Washington state estate planning lawyer to help choose your fiduciaries.
Fiduciaries play vital roles in your estate plan, which is why you want to consider the individuals you choose carefully. An experienced estate planning attorney can help make these decisions easier by offering valuable insights into why one person or organization might be suited for a specific position and why, or not suited at all.
Our estate planning team understands how important it is to create a comprehensive estate plan that you and your beneficiaries can count on. Call our office today.