It can seem overwhelming to begin an estate plan for yourself and your loved ones. What will happen to my children if I die? How do I avoid excessive taxes and costs? Who do I trust to carry out my wishes? If you do not address these questions, you risk burdening your family and friends with decisions and responsibilities they may not be capable of facing. Estate planning is so much more than drafting a will and tucking it away in a safe or a drawer.
To form a comprehensive plan to protect your assets and provide for the next generation, one of the first topics you must address is the fiduciary selection process. Trustees, executors, agents and guardians for minor children are some of the more common terms for fiduciaries that you might have heard and each refers to different type of fiduciary, each with a specific role to play. Because these fiduciaries will step in to make decisions when you’re no longer able due to incapacity or death, they take on extremely important roles in your estate planning process. If you think of yourself as the director of the estate planning process, think of these fiduciaries as your cast of characters.
What is a Fiduciary?
A fiduciary is, in a basic sense, someone who is legally obligated to act in another person’s best interests. When you choose a fiduciary during the estate planning process, you’re picking one or more people to make decisions on your behalf. Your fiduciary will act in the best interests of you and your beneficiaries, based on the instructions you leave in your estate planning documents. If you do not select a fiduciary or fiduciaries to fill these roles, the Court system will become involved and will appoint fiduciaries who could be a family member you would never want to involved in the handling of your estate, or even a complete stranger.
What is an Executor?
When you are creating your will, you will choose an executor to carry out the terms of your will during the probate process. Your executor will be responsible for proving to the Court that your will is a valid legal document and your true last word. There are several factors to consider when choosing an executor. You may choose to select a paid executor who doesn’t stand to gain anything from your will, and therefore may be more impartial with the division of your estate. A paid executor can be a good choice if you have many beneficiaries and a large estate. You may also choose to select a family member or friend as your executor; however, you want to consider that being an executor involves a great deal of work that can be burdensome on family and friends.
Probating a will can be difficult because there may be Court-ordered deadlines, accountings to figure out, or challenges to your will. Your executor might need to hire a CPA, attorneys or other professionals to help sort everything out. While it might be beneficial to choose a spouse or child as your executor because they are already familiar with your wishes and your assets, you should carefully consider what their emotional state might be at the time of your death as well as the time and ability needed for the task.
What is a Guardian for Minor Children?
When you have minor children, it is your responsibility to make sure that they are taken care of in every way, and that doesn’t stop when you are developing your estate plan. It can feel overwhelming and debilitating to think about, but you need to think about who you would want to raise your children in the unlikely event that you die before they reach the age of 18.
A guardian for minor children is a fiduciary named in your will who assumes the parental role and is responsible for raising your children until they reach adulthood. Although no one could ever parent exactly like you, you want to consider someone who would love your children, provide daily support and guidance, and promote their general welfare, health, and education. There are many factors to consider when choosing a guardian, including how familiar and comfortable the guardian and your children are with each other, the age, health and energy level of your potential guardian, the parenting style of the guardian in comparison to your own, and the religious and spiritual beliefs of the guardian.
While naming a guardian is a tremendous honor, it is also a huge responsibility; you should ask your potential guardians if they would be willing to accept this responsibility and thoroughly discuss the expectations that come with it. You can also ensure in the estate planning process that the guardianship does not create a financial burden for the guardian by creating a trust for your children or by allocating life insurance or other assets.
If you do not name a guardian in your will, a judge will be forced to determine who raises your children. Your friends and family may fight over who gets custody of your children, and the judge, who has no personal knowledge of you, your children, or your relatives and friends, must make the monumental decision of who is the most appropriate person to raise your children. If, however, you named a guardian in your will, the judge will most likely respect your choice.
What is a Trustee?
A well-designed estate plan often centers around a trust agreement. A revocable living trust is a trust in which the terms can be changed at any time during your lifetime. Any property placed in the trust will pass directly to the beneficiaries named in your trust agreement without having to go through probate, though the property will be subject to creditors and taxes. In most cases, you would name yourself as the initial trustee and would continue to manage your own assets as you wished, including your income, taxes, bills, saving, investments, etc. If you are married, you may want to name your spouse as a co-trustee, which would make it easier to handle your financial affairs in the event that you become incapacitated or die.
You could also establish an irrevocable living trust, which is a trust that cannot be revoked or amended. Since you cannot remove any property that you place into an irrevocable living trust, it is not considered part of your estate when you die and therefore not subject to estate taxes. For an irrevocable living trust, you are not allowed to serve as a Trustee and must step aside.
It is also important to select a Successor Trustee. A successor trustee is an understudy who will step in when you or your initial trustee are no longer able or willing to manage your trust. A successor trustee will be responsible for managing the assets owned by your trust and ensuring that the terms of the trust are followed as you directed.
There are many options for choosing a trustee or successor trustee. You may want to select a spouse, an adult son or daughter, other relative, or trusted friend. You may also select a corporate or professional trustee. A professional or corporate trustee is an expert who has the time, experience and resources to manage your trust and, since they are not involved in your personal life, they will act impartially.
Because your trustee and successor trustee largely act outside of the Court system, you should consider the financial and business expertise of each person you are considering, as well as the time commitment that would be required. The most important consideration should be the reliability and trustworthiness of your fiduciary, as you are placing in them an enormous amount of responsibility and trust.
What is a Trust Protector?
As we have said, trustworthiness should be the cornerstone quality when you are determining your trustee. However, you can opt to have an additional layer of protection for your trust by appointing a trust protector, an individual named in your trust who can watch over your trustee and ensure that your directions are followed. A trust protector can be empowered to update your trust without interference from the Court, terminate the trustee or even select a successor trustee. Again, you want to be careful when picking your candidate for such a powerful role, and you should carefully consider their honesty and dependability.
What is a Health Care Agent?
A Health Care Power of Attorney allows you to express your wishes for your future health care and medical needs. In it, you will name an agent who will be responsible for making medical decisions for you when your doctor determines that you are no longer able to make your own decisions. Your agent may need to decide what type of care you need and who is best suited to provide your care. You should choose an agent who knows you well and is willing to respect your wishes, even if they do not agree with your wishes. It is important to communicate openly and honestly with your health care agent so that they are prepared for the difficult decisions that may come.
What is a Financial Agent?
A Financial Power of Attorney allows you to designate someone to handle your financial affairs if you become temporarily or permanently incapacitated. Depending on how you draft your Financial Power of Attorney, an agent can pay your bills, file your taxes, purchase life insurance, sell or purchase property, and manage your investments.
Your agent is limited to the powers given under the Financial Power of Attorney and is legally obligated to make decisions according to your instructions and in your best interests. Your agent is also responsible for keeping your property separate from his/her own and avoiding conflicts of interest. When choosing a financial agent, consider someone who has a strong moral code, financial or business experience, and who can be assertive in upholding your wishes.
Putting the Cast Together
Picking your fiduciaries involves a lot of careful consideration. Contacting a knowledgeable estate planning attorney is your first step to creating a thorough plan for your family’s future. Give us a call so we can advise you on the best plan to meet your wishes and needs.