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A fiduciary is someone legally obligated to act in another person’s best interest. In estate planning, fiduciaries are responsible for managing financial assets, handling legal matters, or making healthcare decisions when the person who appointed them is no longer able to do so. Key fiduciary roles include trustees, executors, and agents under powers of attorney.
Selecting the right fiduciary is critical because these individuals or institutions must act with integrity, impartiality, and competence.
A trustee is responsible for managing the assets held in a revocable living trust (RLT). The person creating the trust (called the grantor) typically serves as the initial trustee, retaining control over their assets during their lifetime. Upon the grantor’s death or incapacity, a successor trustee takes over and manages the trust according to its terms. The successor trustee distributes the trust’s assets to the named beneficiaries and ensures that everything is handled according to the grantor’s instructions.
Choosing a reliable trustee is crucial because they are legally required to act in the best interests of the beneficiaries. The ideal trustee is financially competent, organized, and trustworthy. Many people select close family members or friends as trustees, but if family dynamics are complex or no suitable individual is available, it may be wise to appoint a professional trustee, such as a bank or trust company.
Professional trustees offer expertise in asset management but charge fees for their services. Whether you choose an individual or an institution, it’s essential to ensure your trust document contains clear instructions on how to manage and distribute the assets. Regularly reviewing your trust will help ensure that the terms remain aligned with your goals.
A power of attorney (POA) is a legal document that grants someone the authority to make decisions on your behalf if you are unable to do so. This person is known as your agent or attorney-in-fact. POAs ensure that your financial affairs and healthcare decisions are managed according to your wishes, even if you are incapacitated. There are two primary types of POAs: financial powers of attorney and healthcare powers of attorney.
A financial power of attorney allows your agent to manage your financial affairs, such as paying bills, managing bank accounts, and filing taxes. The agent can also handle real estate transactions, purchase life insurance policies, or manage investments. Some people appoint trust companies or financial advisors as agents under their financial POA to ensure professional management.
It is essential to choose someone you trust implicitly since your agent will have significant control over your finances. Keeping your financial POA up to date ensures the appointed person is still able and willing to serve when needed.
A healthcare power of attorney gives your agent the authority to make medical decisions on your behalf if you are unable to communicate your wishes. This person will need to understand your healthcare preferences and be prepared to advocate for them, even during stressful medical emergencies.
The healthcare agent may be responsible for making decisions about surgeries, treatments, or end-of-life care. As with the financial POA, it’s essential to regularly review and update this document to ensure that your chosen agent is still the best fit for this role.
An executor, also called a personal representative, is responsible for carrying out the instructions in your last will and testament. The executor gathers your assets, settles any outstanding debts, and distributes property to the beneficiaries named in your will. If your estate requires probate, the executor must navigate this legal process, ensuring that all paperwork is filed correctly and deadlines are met.
Your executor should be someone who is organized, responsible, and capable of managing complex tasks. While many people appoint a family member or close friend, it’s important to consider whether that person has the time and skills to handle the responsibilities involved.
If your estate is large or involves significant legal complexities, hiring a professional executor may be a better option. Attorneys, accountants, or financial advisors can serve as professional executors and bring expertise to the process, although their services come with fees. To avoid delays, it’s also wise to name an alternate executor in your will, in case your first choice is unable to serve.
Choosing fiduciaries can sometimes create tension within families, especially if some members feel overlooked or disagree with your choices. To minimize conflict, it’s important to communicate your decisions in advance with family members and potential fiduciaries. Clear communication ensures that everyone understands your intentions and can reduce misunderstandings or disputes after your death.
In some cases, you may want to appoint co-trustees or co-agents under a power of attorney to share responsibilities. While this arrangement provides checks and balances, it can also slow decision-making if the parties do not agree. If your family dynamics are particularly complex, hiring a professional fiduciary can provide impartial management and help avoid conflict.
It’s essential to review your estate plan regularly and update fiduciary appointments as needed. Life events, such as the death or incapacity of a fiduciary, changes in relationships, or significant financial shifts, may require adjustments to your plan.
Outdated documents can lead to confusion and delays, especially if a designated fiduciary is no longer able to serve. Reviewing your estate plan every few years or after major life changes will ensure that it reflects your current circumstances and intentions. If a fiduciary needs to be replaced, it’s important to update the relevant documents promptly to avoid complications.
Estate planning can be complex, especially if you need to choose fiduciaries for a large estate or navigate complicated family relationships. Working with a professional estate planning attorney can help you make informed decisions, draft effective documents, and ensure that your fiduciary appointments comply with state laws.
Trust companies and law firms also provide fiduciary services and can serve as trustees, executors, or agents under powers of attorney. These professionals bring valuable expertise and impartiality to the process, helping ensure that your estate is managed according to your wishes.
Choosing the right fiduciaries—whether they serve as trustees, executors, or agents under powers of attorney—is essential to ensuring your estate plan works as intended. These individuals or institutions play critical roles in managing your assets, making healthcare decisions, and distributing your property to beneficiaries. Thoughtful selection and regular updates to your estate plan will help protect your legacy, reduce the risk of conflicts, and ensure your wishes are respected.
Navigating estate planning can feel overwhelming, but you don’t have to do it alone. Contact us today to schedule an in-person or virtual consultation. We’ll guide you through the process of selecting fiduciaries and updating your estate plan, giving you peace of mind that your legacy is in capable hands.
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