What is a Fiduciary?
A fiduciary is an individual or entity that acts on behalf of another person. Although a fiduciary relationship can be created in a professional or personal context during life (i.e. financial advisor, health care proxy, power of attorney, etc.), this post will focus on the fiduciaries who are appointed to handle your affairs after your death: executors, trustees, and guardians for minor children.
The executor (or “personal representative” in some states) is the individual who you appoint in your will to handle your affairs after death. The executor’s primary role is to carry out your wishes. To accomplish this, the executor will need to submit paperwork to the court, marshal assets, pay creditors, and ultimately make distributions to the beneficiaries of the estate. The executor may be a beneficiary of the estate, but must act in accordance with the instructions specified in your will. The executor may retain legal counsel to help with the process and is entitled to a commission. It is important to name an executor who is familiar with both your family and your assets so that the probate process goes smoothly and nothing is missed.
A trustee is similar to an executor but is only responsible for the property owned by the trust. The trustee has similar duties and will need to perform similar tasks as an executor, but their scope is usually more limited. Unlike most estates, trusts often remain in place for many years and own property that can grow in value. Therefore, it is helpful to name a trustee who has a business background and is a prudent investor.
We don’t like to talk about tragedy, but it is important to provide for minor children in the unlikely event you pass away at a young age. If the other parent of your child is living, he or she will automatically retain full guardianship rights. However, if the other parent has predeceased you or if both parents die at the same time, the court will step in to determine who will be appointed guardian of the children.
As a general rule, the court will appoint the individuals named as guardians in your will. Therefore, it is critical that your attorney include a guardianship provision in your will. Naming guardians ensures that you determine who cares for your children, not a third party. If you do not name guardians in your will or do not have a will at all, matters could become more complicated.
Surviving family members do not always agree on who will take care of the children. Disputes often arise between the family of the mother and the family of the father. You can help avoid these issues and reduce the strain on your children by designating your preferred choice(s) in your will.
To avoid “drama”, discuss your wishes with your family members—those who you appoint as fiduciaries and those who you don’t. Explain why you made certain choices. Communicating openly eliminates surprises and gives family members a chance to ask questions. This also gives your nominees an opportunity to tell you if they are uncomfortable serving in the role. Ultimately, it’s one less thing for your family to stress about when you become ill or pass away.
In a future post, I will discuss the obligations, duties, and rights of the various fiduciaries and provide some tips on what to do if you are appointed to serve as an executor or trustee.