The importance of choosing the right people to fill fiduciary roles cannot be overstated. The word “fiduciary” derives from the Latin verb fidere – to trust – and it is true that individuals named to these roles should have the highest level of trustworthiness. Ideally, however, the people serving as fiduciaries should also possess the necessary skillset to successfully perform the tasks required. Because the responsibilities in each role are somewhat different from the others, taking the time to think through whether a potential fiduciary’s skillset and personality are compatible with the role is well worth the effort. Here is an overview of each role, which will be followed in subsequent posts with more detail about each particular one.
- An agent under a power of attorney may manage your finances on your behalf during your lifetime. Agents are often granted nearly unlimited powers to carry out any action you might undertake for yourself. Unfortunately, this broad power is sometimes abused, so trustworthiness is the absolute guiding star when choosing an agent. Another important factor is attention to detail. Investment, banking, bill payment, and other records of actions should be maintained. This person may also be tasked with voting on (or otherwise controlling) your business affairs. Thus, it may be easier for an agent who lives locally and has intimate knowledge of your affairs to act on your behalf.
- By contrast, an agent under a health care power of attorney is empowered to make decisions about your body. If you are unable to make or communicate a decision about your own medical care, your agent is named to make those decisions. Thus, this person becomes your advocate. The person named should be familiar with your values and your wishes, and if necessary, be assertive enough to ask the right questions of medical professionals. Finally, it is helpful (but not essential) to name someone with medical experience and who is local. If you are in an assisted living or a nursing care facility, your agent is the facility’s main point of contact.
- An executor is appointed to wrap up your affairs after your death. This begins by qualifying before the circuit court clerk and may include preparing an inventory of your assets at your death and an accounting showing payment of your debts, receipts by your estate, and distributions to your beneficiaries. Your executor is also obligated to file your final income tax return. Strong organizational skills are critical to this position because record-keeping, meeting probate deadlines, and making tax elections and filings are key aspects of the job. Weeding through and selling, distributing, or donating household contents is also a major function of the job, and it’s no small task. If the executor is not a resident of the state, this task is more cumbersome. In addition, the court may require that the executor be bonded.
- A trustee is put in place to manage money for the long-term benefit of the trust’s beneficiaries. The person in this position must be prepared for a commitment and possess either a talent for asset management or the ability to assess information provided by a competent professional who is hired. Consider naming someone who has a sense of your values and the beneficiaries’ needs, so that if the trustee is called upon to make discretionary distributions, he or she has a solid foundation from which to consider the issues. Often the interests of beneficiaries conflict, so your trustee may be tasked with making difficult choices.
Naming the wrong people to these fiduciary roles can cause even a well-constructed estate plan to fall apart. Your attorney can help you identify individuals in your life who would be a good fit for each role, but your knowledge of both the character and judgment of the people you choose is paramount. If you lack confidence that people in your life have the talent or character required of the job, choosing a professional trustee may be the better course.