An objective of many estate plans is to provide a smooth transition for loved ones. The effectiveness of your plan in accomplishing that goal depends on a few key people or entities you select to handle your affairs in your absence. Your estate planning documents create these roles, and the people you select to fill them are known as fiduciaries.
What are the types of fiduciaries?
Generally speaking, there are four types of fiduciaries in your estate plan – executor, guardian, agent, and trustee. Depending on your plan, you may have more than one of these fiduciaries, and in some cases one person will serve in multiple fiduciary roles.
- Executor (personal representative) – Your executor is the person or entity responsible for administering your estate through the probate process. Duties of the executor include inventorying and gathering your assets, managing and maintaining those assets, completing all the administrative and tax responsibilities of your estate, and distributing your assets according to your wishes. An executor may be responsible for these tasks anywhere from 6 to 24 months, depending on the size and complexity of your estate. Your executor can serve with or without compensation or bond, depending on the terms of your will.
- Guardian – The guardian is the individual(s) responsible for the care of your minor children after you pass. This responsibility lasts at least until your children reach the age of 18. You can name your guardian in your will or a separate document called a Designation of Guardian.
- Agent – Your agent is the individual(s) responsible for handling your affairs, managing your assets, and making decisions on your behalf in the event that you’re not able to do so, as in the case of incapacity or illness. You designate your agent in a general or medical power of attorney, from which spring responsibilities regarding your finances and healthcare. You should expect your agent to be available and serve during the entire period of your incapacity.
- Trustee – Your trustee(s) will be responsible for investing and managing the assets of any trust you create (whether in your will or as a stand-alone document), distributing the assets in accordance with the terms of the trust, keeping accurate records, and filing all necessary tax returns. It is common to serve as the trustee of your own living trust, so that you maintain control of the trust assets during your lifetime – but in the case of trusts created in your will, your trustee may be involved with the management of the trust for many years.
Selecting your fiduciaries
In selecting each of your fiduciaries, trustworthiness should be the priority, given that these individuals are acting on your behalf to fulfill your wishes and ensure the protection of your assets and loved ones. It is critical to choose people that you know will act in your best interests and follow the terms of the documents creating their responsibilities. Perhaps it’s your spouse, a sibling, or one of your children. It can even be an institution, such as a bank or trust management company, if you feel that your family members or friends would not be able to manage the complexities of their duties or you simply don’t want to burden them with the responsibility. Corporate fiduciaries, especially as trustees, can be great options for high-value trusts or with unsophisticated beneficiaries – but keep in mind that there are fees associated with these entities that are determined by the size of the estate or trust.
In addition to being trustworthy, your selected fiduciaries should possess the skills required of the role you wish them to fill. For example, your trustee and executor should be good with money and have good organizational and management skills. Your guardian should be familiar with your children and have the ability to create a healthy household environment. Your agent should be able to make difficult decisions and perform under pressure.
Fiduciaries are held to strict standards of loyalty, skill and diligence, so you should not choose anyone who may have a conflict of interest with you, your estate, your beneficiaries, or your other selected fiduciaries.
Regardless of who you choose for each role, secondary or successor fiduciaries should be named as well, so that in the event the primary fiduciary is unable or unwilling to serve in that role, a successor can step up to ensure seamless management. You may choose as many successor fiduciaries as you wish, to ensure that a trusted person serves on your behalf. However, it is good practice to name a corporate fiduciary as a backup to all named successors, since there is no risk that the corporate fiduciary will need to step aside because of illness, death, or personal issues.
As with your estate plan in general, it is advisable to review your named fiduciaries at least every few years to make sure your selections are still available to serve and no major life events have occurred that may require a realignment of your selections.