A Matter of Trust: Tips for Choosing Your Fiduciaries

There are several key components to any estate plan.  A will or trust will describe who will be entitled to certain assets, how the assets will be held and when distributions will be made to the beneficiaries.  An equally important component is who will be in charge of administering the estate or trust.  These persons are commonly referred to as fiduciaries.

A fiduciary is a person who takes care of property or other matters for another person.  In estate planning, the three most common forms of fiduciaries are executors, trustees and guardians.  An executor is the person responsible for the administration of an estate of a deceased person.; a trustee manages and administers a trust for the trust’s beneficiaries; and a guardian cares for the personal and financial needs of another person who legally cannot take care of themselves (typically, minor children or persons with severe disabilities).

Selecting fiduciaries is often overlooked by estate planners and their clients as a secondary concern to who receives the estate or trust’s assets and how the assets are held.  But, choosing the wrong person to serve as a fiduciary can have severe consequences (litigation, wasted assets, etc.) for the beneficiaries and fiduciaries alike.

Fortunately, selecting the right people should not be difficult if you keep the following tips in mind:

1)    Make sure the nominated fiduciary is willing to serve-It is not uncommon for a person to be nominated for a fiduciary position and be unaware of their appointment.  This is especially true of appointments under wills where the actual work will not occur for many years.  During the drafting phase of any estate-planning document, clients should contact the people they wish to serve as fiduciaries and confirm their willingness to serve.

2)    Ensure that the nominated fiduciary is qualified to serve-Spouses typically name each other as their executor and trustee.  Alternatively, children are often nominated to serve as the initial or successor fiduciary.  While this is understandable, the nominated person must be aware of their responsibilities and be capable of carrying them out.  A fiduciary is held to a very high standard of care and failing to live up to their fiduciary duties has can lead to many headaches for fiduciary and beneficiary alike.

3)    Be mindful of a fiduciary’s relationship with the beneficiaries-The relationship between the fiduciary and the person appointing them is not the only one that should be considered.  While it may not be necessary or wise to get a beneficiary’s approval of a fiduciary, consideration should be given to how they will interact.  This can become especially tricky when issues of divorce and stepparents come into play.  If there is potential for conflict between a fiduciary and a beneficiary, appointing a co-fiduciary or even an alternate fiduciary is advisable.

4)    Understand how a fiduciary is compensated-Under New York law, fiduciaries are entitled to statutory commissions for their service to the estate or trust.  In some instances, a family member serving as a fiduciary will waive their right to commissions even though they are entitled to them.  If you choose a corporate fiduciary or a professional to serve, they will likely have a set fee schedule for their services.  This may be in excess of what the statute requires and, in the cases of attorneys serving, may be in addition to legal fees that they charge.

5)    Choose successor and co-fiduciaries carefully-When a fiduciary stops serving, the will or trust instrument typically has a named successor who will take their place.  In some instances, the will or trust creator names co-fiduciaries to ensure that one person is not overburdened. Both successor and co-fiduciaries will have to work with other fiduciaries and the beneficiaries and must be compatible with both.  Conflict between fiduciaries can snowball quickly and lead to protracted legal battles that may severely deplete the assets of a trust or an estate.

Once assets are transferred to a fiduciary or a person is put in their care, the responsibility to protect those assets/people becomes theirs.  Fiduciaries are held to the highest standards of care because they are given exclusive control over a person’s most important assets.  You should use the same level of care when choosing who your fiduciaries will be.

Please contact info@levyestatelaw.com for more information.

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