Are you considering appointing a professional trustee or executor to administer your estate? There are several boxes a fiduciary such as a trustee or executor must check before you want to designate them—at the very least, they should be trustworthy, competent, and old enough to carry out the duties required.
Even if you have the perfect estate plan written now, someone has to execute your wishes after you’re gone. This can be an individual (a spouse, child, friend, etc.) or a financial entity (e.g., local trust company or national trust company affiliated with your investment company).
Not every family has a person that is able (or willing) to fulfill this role. However, even if families have one or more people in mind that could carry out these responsibilities, there are factors to consider in determining whether they should perform as fiduciary. This is where an outside fiduciary as a professional trustee or executor comes in handy.
1.) Would taking on the role as a fiduciary burden the person you appoint?
A financial institution as a professional trustee or executor will assign your estate plan to an estates and trust department professional. This professional likely has tax, investment, and legal knowledge. They handle everything from estate or probate administration, investing assets, taxes, banking, and issues arising from each category.
This is a lot of responsibility. A financial firm will have the resources to iron out issues and details that your appointed fiduciary almost certainly won’t have access to.
What does it cost?
These institutions have a fee schedule, and it is usually based on the amount of assets your estate has. Usually (but not always), this is an annual percentage of the total estate value.
As with everything else in life, we outsource to third parties, and there’s a cost-benefit analysis undertaken to determine whether outsourcing is worth it. Cost factors include fees, control relinquishment, and communications gaps. Benefits include broad expertise, procedural best practices, and time/energy savings.
2.) Continuity of fiduciary responsibility
Depending on the complexity of your estate plan, the person you appoint may not be capable of performing the duties required of them as a fiduciary long-term. In this context, we use the term “capability” in every sense of the word—competence, time, patience, technical knowledge, emotional, and physical.
For example, suppose your estate plan includes regular payouts to someone spanning over decades. In that case, you will have to ensure your fiduciary can take on that responsibility for such a long time. In this scenario, your fiduciary must be the perfect combination of young, patient, competent, and responsible to perform from inception to settlement.
On the other hand, if the professional assigned to your estate at a trust company cannot perform in any way, your estate plan will be delegated or assigned to another professional within the estate and trusts department. Practically speaking, as long as the second professional performs as competently as the first, there’s no difference in the estate’s administration.
3.) Consider the relationship between the fiduciary and your beneficiaries
If you have multiple children and two or more of them have a rocky relationship (in many cases, this is putting it mildly), realistically consider how smooth estate administration will go when one child is in charge of doling out everyone’s inheritance plan.
Or perhaps your children have the most wonderful relationship now and, of course, you’d like to keep it this way. But, whether the inheritance plan is unequal for some reason or the stress of losing a parent creates tension between siblings, the relationship dynamic can change for the worst when one child is placed in the proverbial crosshairs of estate administration.
4.) You have to trust the trustee
Based on the nature of your estate plan, its complexity, and your loved ones’ attitude towards the fiduciary, a person may be able to perform their duties as a trustee or executor easily. However, even if the trustee is doing everything right, suspicions may form when money is involved. This is especially true if the fiduciary also has an interest in your estate assets. In addition, when the fiduciary is an individual, there’s no organizational policy, procedure, or training the fiduciary follows (other than what is in your estate plan). The lack of structure may make your loved ones uneasy.
Conversely, when a financial institution is in charge of estate administration as a professional trustee or executor, others in the organization make sure they follow policies and procedures—whether ethical or technical.
Life happens. Plan on it.™
If you would like to discuss whether you should appoint a professional trustee or executor with an attorney as soon as possible, great! We would love to hear from you. You can reach out to us here. We would also like to invite you to attend one of our informative and interactive workshops. You’ll leave the seminar with newfound knowledge on making your estate plan work for you, avoiding common pitfalls, and the answers to some of our most frequently asked questions.