Thursday, April 11, 2019

Fiduciaries: Choose wisely!

According to a 2018 Forbes article, more than half of Americans lack basic estate planning documents. A 2017 AARP survey puts this number even higher, at 60%. Excuses for not having at least a will abound – even among attorneys – but uncertainty over choosing a fiduciary (or even understanding what exactly a fiduciary is, and why their role is so critical) might play a role.

Basically, a fiduciary is a person or organization who has specific rights and powers to act for another’s benefit. Fiduciaries are usually granted broad powers, and they have a duty to act transparently and in the best interest of the person who named them.

When we work with clients and their attorneys in preparing estate planning documents, we ask them to select fiduciaries to fill different roles. Key fiduciaries include:

  • the executor of their estate who will act under their last will and testament;
  • the attorney-in-fact* who will act under their power of attorney;
  • the agent who will act under their living will to make healthcare decisions; and
  • the trustee of their trust.

In rare cases, the same person may be the appropriate fiduciary for all four roles. But read on for why that may not be true. When selecting a fiduciary, you should keep five points in mind:

1. Remember, you aren’t just picking one

Not only do you likely want to consider different people or entities for your varying fiduciary needs, each fiduciary you select will need one or more successors.

A client might immediately know their spouse should be their power of attorney, or that a child, who is an attorney, would make the best executor of their estate. While it is tempting to cross that off the estate planning list with a sigh of relief, their work, unfortunately, is not done. As 18th century poet Robert Burns wisely noted, the best-laid plans of mice and men often go awry.

There is no way to know whether we will outlive our spouses, or whether our children will move across the country where they might not be able to act as a particular fiduciary role requires. Because the only certainty in life is uncertainty, it is important not just to select initial fiduciaries, but to name successor fiduciaries if the person or organization you initially select cannot serve. For each document that requires a fiduciary, you should select who you would initially like to serve, as well as one to two additional individuals who can serve if your first choice is (or becomes) unavailable.

2. Consider the document’s terms

Each of your estate planning documents will have differing terms. When it comes to your fiduciary, you should look at the terms governing how long the document will be in effect as well as how complex the day-to-day terms of the document might be to uphold:

  • Duration: Your power of attorney and living will last only for your lifetime, while you might establish a trust that lasts for multiple generations. For your power of attorney, it is reasonable to name an initial fiduciary and one to two successors. If you are creating a trust to support your descendants, you want to account for the possibility of all initially named fiduciaries being unable to serve at some point. You might address this issue by creating an advisory committee comprised of trust beneficiaries who can remove and replace trustees.
  • Document terms: The greater the document’s complexity and the number of terms the fiduciary will have to uphold, the more careful you should be choosing an appropriate fiduciary.

3. Consider the assets involved

Do you own a large art collection? Are you a writer with various copyrights in your name? Do you own oil and mineral interests across five different states? Do you own a large portfolio of lowbasis stock?

Your executor or trustee will be responsible for managing any assets in your estate or trust. So you should name a fiduciary with the expertise necessary to manage your assets.

4. Geographic considerations

Consider where your fiduciary resides. If you experience a medical crisis, you do not want your agent for your healthcare power of attorney living in another country. If you are selecting a corporate executor, make sure it can serve as executor in the state you reside in before naming them in your document. If you are establishing an irrevocable trust, talk to your estate planning attorney about any tax consequences that might be caused by the “situs of administration” (where the trustee who administrates your trust is located).

5. Decide whether an individual or corporate fiduciary best fits your situation

For your power of attorney and living will, an individual fiduciary is likely best; in fact, many corporations do not serve in these capacities for clients. When it comes to choosing an executor or trustee, other factors come into play.

A trustee or executor will have many responsibilities, including: carrying out the terms of the documents, managing and investing the assets, obtaining appropriate valuations and appraisals, keeping beneficiaries informed and complying with state notification requirements, and completing tax filings and making tax payments. Because of the complexity involved, many clients benefit from having an experienced professional serve in these roles. Using a corporate fiduciary also comes with the benefit of neutrality, which can be especially helpful when there are multiple children, blended families, or other complex family dynamics.

At Hilliard Lyons Trust Company, we understand that, when a client names us as a fiduciary, our name goes in their estate planning documents right alongside their spouses, children, and most cherished charities. We take this honor seriously and take pride in the assistance and comfort our expertise allows us to provide our clients when we serve as fiduciary. To learn more about naming HLTC as a fiduciary, contact your financial advisor today.

*Note: The document you sign is a “power of attorney,” but the person named with power to act is an “attorney-in-fact.” A person cannot be a “power of attorney,” although you hear this in casual speech.

Hilliard Lyons Trust Company does not provide tax or legal advice. Clients should consult their attorney and accountant regarding their individual situation.