This is the second installment in our blog series on Choosing the Right Fiduciary. This week, we discuss how to select the best agents under a power of attorney.

Schooley Law Firm | Choose The Right Fiduciary | Richmond VA.png

An agent under a durable general power of attorney is empowered to carry out almost any action you (called the ‘principal’) could take for yourself with regard to your assets and finances. Many clients choose to name their spouse as their agent, which can make sense because a spouse is often well-positioned to be familiar with financial affairs and can be one of the most trusted individuals in a person’s life.

Clients who are unmarried or for whom it is not desirable to name a spouse sometimes struggle with this decision, however, and married clients can have similar trouble choosing back-up agents to serve if their spouse is unable to act. Your choice may be guided by several factors, but the most paramount is trust. The power granted under these documents makes abuse relatively easy and difficult to detect. Consider naming family members or close friends who merit a high level of trust and do not have financial, addiction, or other troubles in their past that might render them vulnerable to temptation.

Another factor to consider when choosing your agent is the relative complexity of your financial situation. Agents under a power of attorney are typically called upon to pay your obligations and manage your affairs. If your major assets are cash accounts, retirement assets, and a primary residence, the skills required for your agent to effectively handle your finances are substantially different from someone with interests in small business entities, investment real estate, or securities that are not professionally-managed.

Finally, consider naming someone you believe can be ‘neutral’ in exercising the authority granted under a power of attorney. Agents have fiduciary duties to avoid conflicts of interest when acting on your behalf, but when family issues between siblings or step-relations arise, it can be difficult for someone who is emotionally invested to remain objective. One might question how often an agent under a power of attorney could become entangled in such disagreements, but consider a child approaching the agent for an extension of an existing loan, or a second spouse requesting the agent’s cooperation in purchasing a marital residence or funding the spouse's long term care using the principal’s separate assets. An emotionally-invested agent might even reconfigure beneficiary designations and transfer on death arrangements made by the principal to secure an estate outcome which he or she considers more just. Another problem might arise if an agent (intentionally or otherwise) sells property that is given by specific bequest to a beneficiary under the principal’s estate planning documents to provide for the principal's support, rather than choosing a different asset to sell. Naming agents who are suitably loyal to your own interests and values reduces the likelihood of these kinds of conflicts producing undesirable results.

Depending on the level of complexity your agent will be dealing with (whether that means financial or family complexity), it can be worthwhile to name a professional such as an accountant, attorney, or someone else with special skills that will increase the agent’s effectiveness. Although this option can be more expensive, it might make sense if there is substantial risk in naming a family member or friend who may not be up to the task. Agents who are already acting under a power of attorney can also benefit from engaging professional services to supplement the agents’ own knowledge and skill.

In case you missed the first part, Choosing the Right Fiduciary. And look for next week’s installment in our blog series on Choosing the Right Fiduciary – Health Care Powers of Attorney.

Jennifer Schooley | Contact | Estate Planning

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.

Jennifer Schooley | Contact | Estate Planning