Dec 10, 2022

Estate Planning: What to Consider When Filling Fiduciary Positions

You can spend a lot of time and effort crafting an articulate and comprehensive estate plan. However, if you don’t put the right people in charge of executing this plan, all of this energy will be for naught.

The Role of a Fiduciary in Your Estate

Estate planning is a multifaceted process with lots of moving parts. It starts with outlining a set of instructions for your important assets, responsibilities and sense of legacy (how you wish to support or be remembered by loved ones/community/positive impact).  This means going through each of those areas and working through what someone needs to know to carry out management if you weren’t able to do so. But that’s just for starters. Even more important is how you structure the execution of your estate.

Unfortunately, this is where I have seen folks limit themselves to the “should”.  We (myself included) think we “should” name the person within that first ring of relationship that would do the best job.  How many times have I heard:  between my two kids, my daughter would do a better job (but she’s not a bright bulb).  Over the years, I’ve come to understand that we’re so afraid of hurting someone’s feelings that we lose sight of the importance of assigning fiduciary roles to those most suited for the roles.

In many cases, this is a direct result of a lack of clarity and understanding around what fiduciaries do. In the simplest of terms, a fiduciary is any person who holds either a legal or ethical relationship of trust with you. Within the context of estate planning, it’s someone who has agreed to take responsibility for your assets, responsibilities and to carry out your legacy wishes when you’re unable to do so (like death or caught under something heavy).

Every estate plan is unique. However, you’ll find that every estate has at least one fiduciary role included in the plan. Some have several fiduciaries to manage the different spheres of their estate. (The person who might be best to manage your financial affairs might not be the best guardian for your child.)

First things first:  It’s easy to be overwhelmed with all the titles.  There’s a fair bit of them and I don’t need to get your pulse racing by listing them here.  Remember, it’s all about the sphere of your estate and there’s only three of those:  your assets (property, business, financial), your responsibilities (your health, your children, business partnerships, maybe special needs family) and your legacy (how do you want to be remembered or what you want to accomplish).  Moving forward, rather than throw in titles (which denotes what kind of document that person acts under), I’ll just say Financial Fiduciary, Responsibility Fiduciary or Legacy Fiduciary.

Choosing people for the fiduciary roles within your estate plan is extremely important. Selecting the individuals best suited for the role can ensure your plan goes smoothly. Naming an ill-suited person can have a detrimental impact – leaving confusion, resentment, frustration, and expensive legal issues in your wake.

Tips for Choosing Your Fiduciaries

When developing an estate plan, selecting fiduciaries is often one of the most challenging parts of the process. Hopefully the following tips will provide you with some helpful insights and pointers so you can proceed with full confidence:

1. What’s your Plan?

Before you can choose who will manage your affairs and follow your instructions, you need a strong understanding of what those instructions might be.  A good starting point is to imagine what might “fall down” if you weren’t around for three months.  What needs attention?  Property, business, contractual obligations, children, parents, etc.   Putting the “who” aside, consider what that person needs to know and do in order to support your estate.  You might come to realize that you might need a number of fiduciaries to step up to support you.

2. Strengths and Weaknesses

Every fiduciary role is unique and commands a different skillset. As you select fiduciaries for your estate, work through the strengths and weaknesses needed for each role and choose accordingly.

For example, if you have children, a Responsibility Fiduciary (Guardian) should be someone who lives close enough to be hands on in an emergency. They should know and love your children, closely share your values and philosophies, and have a suitable personality for your child.  I wouldn’t stress about the size of their house but practical factors should be considered.

3. Family vs. Professional

There are two major approaches to Financial Fiduciaries. The first option – and the one that’s most common with the average family estate plan – is to select family members and loved ones. However, in situations where there’s conflict and/or large assets involved, it’s sometimes better to hire a professional Financial Fiduciary.

A professional Financial Fiduciary eliminates the emotions of the situation and provides an objective third-party to settle and administrate your estate (follow the instructions). The obvious disadvantage is that it comes with a fee – though most consider this money well spent when considering the costs of inaction, poor management, or attorneys’ fees.

4. Who Can You Talk To?

The most overlooked part of an estate plan is the walk-through.  You’ve just asked someone to manage your life’s affairs (in whatever role).   Thank them and prepare them.  This isn’t a game of “gotcha.”  They will be stepping into this role at, most likely, a very inconvenient time.  Walk them through what the first two months might be like.  Show them the documents they will need, the information that they will want, and be prepared to answer their questions and address their concerns.  It doesn’t mean you must tell them how much you have in the bank but they should know which bank!

Let’s Discuss Your Estate Plan

Estate planning is an important and intimate process. It’s not simply a box to check on your way to becoming a full-fledged adult.  Done well, your estate plan integrates the emotional aspects of your estate and legacy with the practical realities of your assets, responsibilities and legacy.  It can be fun, open-hearted, and illuminating.

I’ve spent almost twenty years walking my clients through proactive, time-tested strategies for managing assets, securing the safety of their responsibilities, and planning legacies for their heirs and ethos. If you’re interested in learning more about what it looks like to create a will-based plan or trust-based plan, assign fiduciary positions, and/or have important conversations with your family around your expectations for the future, I’d love the opportunity to speak with you.

For additional information – or to schedule an appointment – please reach out!

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