Planning for Personalities
Planning for Personalities:
Considerations when selecting your Executor, Trustee or Agent
By Mark T. Coulter, Esquire
Estate Planning Attorney
My youngest son asked me the other day what people did for fun before the Internet. I glanced at the picture on the table of our six children, smiled, and evasively replied “We played games.” My family is my passion, as is true for most of my clients. With the joys of family, however, come the tension and disputes which are inevitable for people who spend a lifetime involved with one another. Selection of the people who will take care of us and our affairs when we are unable to do so is a central part of estate planning, and it is important to consider the practical realities of your own family dynamic because that lifetime of history will definitely impact the future success of your estate planning.
Whenever we do estate planning, we must pick people to empower to perform various tasks for us or our family. Typical examples are the Executor who will carry out the instructions under your Last Will and Testament, an Agent who will handle your financial and contractual matters through a Power of Attorney, a Trustee who may oversee protected funds for your family, or a Health Care Agent to make your medical decisions when you are unable to do so. While we hire people to do things for us all the time, estate planning is unique because we are often not able to watch over their performance. When I choose a contractor to fix my kitchen, I can observe the work, make suggestions, change directions, and fire him if I am not happy with his or her work. I can confidently say, based on 30 years of legal training and experience, that I will be unable to observe how my Executor carries out his duties after my death. Selection of the proper people to act on our behalf is crucial to the success or failure of estate planning.
In the estate planning field, we refer to most people who have a role on your behalf as “fiduciaries”. A fiduciary is a person who acts not for themselves, but for another, and has duties of honesty and good faith which guide their actions. For example, your Agent acting under a Power of Attorney, is not supposed to do what is best for them, but what is best for you. Your Executor needs to make certain that creditors are properly paid, and that your beneficiaries receive what they are entitled to. A Trustee must make investment and spending decisions which are prudent and in the best interests of the beneficiaries. These are all examples of people who must act as a fiduciary.
There are many intangible factors which should be considered when selecting your fiduciaries, however one which is often overlooked is the family history which will significantly impact their performance of their duties. While honesty and good judgment are at the core of every fiduciary role, you should consider how your fiduciary will act in light of the day-to-day, year-to-year experiences of your family.
Have you selected a person who is timely in dealing with important or routine matters, or are they more casual about deadlines? Your fiduciary has certain things that they have to get done, and there are often schedules or deadlines to be adhered to. You may want to lean in favor of the person who knows how to get a job done.
Will your fiduciary keep good records? Handling legal or financial affairs for somebody takes time, often measured in months if not years. It also usually requires interaction with numerous financial institutions, as well as the legal, accounting, insurance and other advisors in your life, as well as your various beneficiaries. It is important that a fiduciary is able to be organized and keep good records of their actions so that they can adequately explain your affairs when needed, and can account for any funds with which they have been entrusted.
Will your fiduciary be able to properly share information? Sometimes, people get a sense of power from being in charge, and they seek to exert that power by limiting information supplied to family members. While there is a time and place for discretion against over sharing, or giving information based only on early estimates which create undue expectations in a beneficiary, other times a fiduciary withholds information simply as an exercise of power. In my experience, the more transparent a fiduciary can be in providing information to family members regarding assets, actions and plans, the smoother and more successful the administration will be.
Do your beneficiaries trust your fiduciary? While every fiduciary can be hauled in front of a court to be accountable for the actions they have taken, more often families resolve estate affairs by agreement between the interested individuals. Such family agreements are virtually always going to be the least expensive and most satisfying resolution of estate issues. To the extent that your fiduciary is someone that shares a spirit of trust with your beneficiaries, it will help to minimize the need to spend time and money to provide concrete proof at every step of the process. For example, can your Executor tell the family that you owned 100 shares of Acme Corporation, which sold for $10 per share after your death, or must they produce the account statement which shows your 100 shares, the account statement for every month until sale to demonstrate the number never increased or decreased, and the account statement for the sale to prove the $10 trading price, accompanied by the deposit slip to show the proceeds went promptly into the account? Do they need to provide a receipt for the $87 they spent on a new tire for your car? While we direct fiduciaries to keep records and documents for all of the various actions they take, families enjoy greater success when the fiduciary is able to later itemize and summarize these various actions without the need to organize, produce and circulate the support documentation for every nickel which is spent. In families where a spirit of trust and unity has developed over the years, this process will be far easier.
If you have co-fiduciaries acting together, will they be able to work as a team? When parents appoint more than one person to act concurrently, such as by naming two children as joint agents or co-executors, consideration much of must be given to how well these two people get along. If it is time to sell the family home, and decisions need to be made regarding not only the sale price, but which real estate agent to use, whether to replace the carpet in the family room, how much to pay for lawn care, the color to paint the front door, etc., naming co-fiduciaries who work well together will make this process more successful.
Will your blended family mix well? A particularly challenging situation can be presented when dealing with blended families, where one or both spouses have children from a prior relationship. Commonly, a deceased spouse wants to leave assets to take care of the surviving spouse, with funds remaining after the death of the surviving spouse being distributed to the children or beneficiaries of the first deceased spouse. If the assets are left entirely in the control of the surviving spouse, the funds may be misspent, given away to others, or left to people other than your intended beneficiaries. Often times, we instead use a trust to provide for the surviving spouse, making certain that their needs and goals can be met while assuring that the funds remaining will later go to the proper beneficiaries. During the lifetime of the surviving spouse, however, an important question is who will be making the decisions about investing and spending the money. The surviving spouse wants a trustee who will be liberal in making distributions for their benefit. Some of the children of the first deceased spouse, however, may want to see that money being carefully preserved to someday pass for their benefit. We must consider and balance these objectives in determining the person who will be making these decisions.
Will your fiduciaries be exposed to liability arising from family tensions? Each fiduciary is ultimately liable to one or more other people to act prudently. Prior years of family conflict can resurface in estate planning issues when one of your family members doesn’t believe your fiduciary is acting properly, thinks money has been stolen or misdirected, doesn’t believe appropriate investments have been made, disputes fees or costs which may be charged, or is upset because somebody else got the red sled while they got stuck with the blue sled (that was honestly an issue between two brothers in their 50’s). Provisions can be included in estate plans to control the exposure of your fiduciaries to such claims. Important legal/financial matters should always have a dispute resolution mechanism available, either via the courts or a private mechanism such as a Trust Protector, however this needs to be balanced against wasting time and energy on minor inconsequential details.
You can take specific steps to position your family and fiduciaries for success. Careful selection of the fiduciaries is always the number one consideration. In addition, no contest clauses can be used to prevent a family member from attempting to disrupt your planning, along with dispute resolution procedures. We often further include provisions in our plans to limit fiduciary liability for actions taken in good faith, even if it turns out in retrospect that they may not have been the perfect decision. We encourage you to discuss your central planning themes with your family, as it is always easier to answer questions and allay concerns when it can be addressed directly by you. Finally, keep good records of your own financial holdings in order to both make it easier for your fiduciary to take control upon your incapacity or death, as well as to provide further assurances to your beneficiaries that all assets have been properly accounted for.
It is important that you select an estate planning attorney who does not merely create documents, but further provide counsel to you regarding the options available and the impact on your family, and can also be there to assist your family through the difficult transitions that accompany disability, aging and death. If you would like to take some time to meet with one of our attorneys for a complimentary review of your current estate planning (or lack thereof), and the planning options you may have available to you, please call our office or contact us online via our website at epcenters.com. The first meeting is free, but the peace of mind of a well-designed plan is priceless.