Understanding Fiduciaries

Estate Planner May-Jun 1998
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Selecting Personal Representatives, Trustees and Guardians 

The disposition of your assets in accordance with your estate plan requires the services of one or more fiduciaries. You may also need other fiduciaries to perform other functions, such as guardian for your children. Understanding the role each fiduciary plays will help you select the right people.

Personal Representative

The first step is to appoint a personal representative or executor to oversee winding up your affairs. If you do not have a will, or if your will fails to name a qualified representative, certain heirs or the court may make the selection. The personal representative is under the control of and accountable to the probate court.
This is a relatively short-term role, and the principal duties are:

1. To inventory and collect your assets,
2. To manage your assets during the term of administration,
3. To receive and pay the claims of creditors and pay taxes, and
4. To distribute the remaining assets to those entitled pursuant to the terms of your will or according to state law.

The personal representative or executor may even be called upon to defend your will, prosecute or defend lawsuits, or temporarily run your family business.
You may select one or more individuals, a trust company, or a combination of both. In addition, select at least one alternate or successor. Personal representatives are entitled to a fee for serving, but some may waive the fee.

The Trustee

If your estate plan involves trusts, you must designate a trustee. The trustee administers the assets held in the trust on an ongoing basis and holds legal title to the assets. The beneficiaries have equitable interests in the assets.

When managing the trust assets, the trustee is held to a high standard of conduct and must administer the assets solely in the interest of the beneficiaries. The trustee must invest and preserve the trust property, keep the property separate from the trustee’s own property, and, according to the standards expressed in the trust instrument, determine the priority of distributions to trust beneficiaries.

Trusts can be long-term entities that span several generations, so you must designate one or more competent individuals or a trust company to manage trust assets. Who you can name as trustee depends on the type of trust:

  • For a revocable (living) trust, you may serve as trustee, or you may name others to manage your assets,
  • For an irrevocable insurance trust, you must designate someone else as trustee,
  • For an irrevocable gift trust, an independent co-trustee (a trust company or an individual) is preferable, but in some circumstances, you may be able to act as trustee as long as you don’t have discretionary authority, and
  • For a trust with a beneficiary as a trustee, generally either an independent party (a trust company or an individual) must serve as co-trustee or distributions must be limited to a narrower ascertainable standard to avoid adverse tax consequences.

Almost all large banks have departments authorized to administer estates, manage trusts and serve as personal representatives or trustees.

The Guardian

If you have minor children, you must designate one or more individuals to serve as guardian whose primary duty is to raise your children. You must also designate a guardian of the estate if the minor has or is to receive assets in his or her name upon your death. This can be the same individual, someone else or an authorized bank.

You Must Decide Which Fiduciaries Are Right for You

We have discussed only a few of the possibilities involved in selecting fiduciaries. Please contact us if you would like more information.