Choosing a fiduciary (a trustee of a trust or personal representative of an estate) is one of the most important decisions made in estate planning. Choosing a capable fiduciary is an essential ingredient to having a successful estate plan.
Understand their role. Not all fiduciaries serve the same role, and understanding their responsibilities is critical to selecting the right one. A personal representative typically serves for a shorter period of time than a trustee, anywhere from a couple of months to a couple of years. During this time, the personal representative is responsible for collecting and protecting estate property, filing tax returns, paying claims, liquidating assets, preparing accountings, and ultimately distributing property to those named in the will. These duties cease when the estate is complete.
A trustee's duties, on the other hand, may need to continue for a much longer period of time, requiring the trustee to have more expertise managing trust funds to generate both income and long term growth. In addition, the trustee must decide what distributions should be paid to beneficiaries. Is it appropriate to buy John a new car? How big a house payment is desirable? The trustee will need to have the judgment to make these decisions, and the stomach to say "no" to beneficiaries' inappropriate requests.
Family Member or Professional? You may be tempted to name a family member or friend as fiduciary because they won't charge a fee for their services and because they have personal knowledge of your family and your desires. If they are diligent, responsible, and regularly seek the advice of advisors, this may work well. However, administering an estate or trust requires regular, dutiful attention. A fiduciary is personally liable to properly administer the estate or trust, and can be sued by beneficiaries for improper administration. In addition, while having familiarity with your family can be an advantage, it can also make it difficult for the fiduciary to say "no" to requests by a beneficiary.
Banks, attorneys and other professionals can be well-suited to serve as fiduciary. While their fees may discourage you, professionals offer advantages that can make the fee well worth the money spent. Professionals may have enough familiarity with your family to assist in the administration, but not enough to impede their decisions. Many professionals have institutional experience investing and managing funds and dealing with the tough issues or difficult beneficiary. Professionals typically have the resources available to prudently manage the trust funds, prepare the necessary accountings and tax returns, and report to the beneficiaries on a regular basis. If you have unusual assets that will be under management or difficult beneficiaries, a professional trustee may be for you.
Selecting the fiduciaries to implement your estate plan is a very personal choice, but selecting the right fiduciary can give you confidence and comfort in your plan.
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Susan Gell Meyers, is a partner with Warner Norcross & Judd LLP and she focuses her practice in estate planning and administration and closely held business law. Susan may be reached in the Grand Rapids office at 616.752.2184. Warner Norcross & Judd is a full-service law firm with offices in Grand Rapids, Holland, Metro Detroit and Muskegon. Because each business situation is different, this information is intended for general information purposes only and is not intended to provide legal advice.