Choosing Fiduciaries for Estate Plans

by Bryan Lane Berson, Esq.

Typically, an estate plan contains several documents.  Wills, trusts, powers of attorney (“POA”), and health care proxies (“HCP”) fulfill different functions.  They appoint one or more people to carry out different responsibilities.  Collectively, these people are known as “fiduciaries.”  A fiduciary has a legal duty to act for the benefit of another person within the scope of the relationship.  Fiduciaries must exercise the highest standard of care.  This column discusses fiduciaries’ roles and personal qualities they should exhibit. (Other columns discuss wills and revocable living trusts, powers of attorney, and health care proxies in more depth.)

I.  Who Shouldn’t Be a Fiduciary?

Before selecting a person as a fiduciary, one should eliminate those who are not qualified to serve.  All fiduciaries should be trustworthy and unlikely to engage in self-dealing.  This may sound obvious, but frequently, people overlook dishonest behavior in those who they want to trust.  Misuse of a POA can bankrupt the principal.  Decisions made under HCPs could mean the difference between life and death.  Wills name guardians to raise orphaned children.  Wishful thinking will not make irresponsible people act responsibly in an emergency.

New York law disqualifies certain people from serving.  Infants, felons, and people with substance abuse problems are excluded.  Those deemed to be incompetent, dishonest, or improvident, and people who suffer from “want of understanding” are excluded.  (These legal terms merit a full discussion that is beyond the scope of this column.)  The court has limited discretion to appoint out of state residents.  Essentially, though, one should select fiduciaries who do not exhibit mental illness, appreciate the value of money, act responsibly, and live locally.  Also, one should confirm that the proposed fiduciary is capable of and willing to serve.  Some people do not want the responsibility.

II.  What are the Roles?

          A.  Wills:  Executors and Guardians

A testator executes a will to leave assets to beneficiaries.  A will identifies (1) beneficiaries to inherit assets; (2) an executor to administer the estate; and (3) a guardian to take custody of the testator’s minor, orphaned children.

The executor initiates a probate proceeding in the Surrogate’s Court (“Court”) to settle the estate.  (Estate planning is discussed in another column.)  An executor should be organized, competent, and capable of maintaining detailed records.  The executor inventories and values estate property, satisfies creditors, distributes property to beneficiaries, and files estate income tax returns.  Inaccuracies and doubts are resolved against the executor.

Guardians are appointed to care for the testator’s orphaned, minor children.  Testators should select guardians who can maintain a suitable environment to care for children and be good parents and role models.

          B.  Trusts: Trustees

A trust is a legal device.  It is a property interest held by a trustee at the request of a grantor for the benefit of a beneficiary.  Essentially, the grantor places a piece of property in a trust where it is held for someone’s benefit according to the terms of a document known as a “declaration of trust.”  The trustee is the fiduciary who manages the property.

In a revocable living trust, the grantor, trustee, and beneficiary may be the same person.  In other types of trusts, usually, the trustee and beneficiary are different people.  Examples include (1) testamentary trusts created in wills; (2) supplemental needs trusts designed to provide supplemental support for people who receive disability benefits from the government; and (3) irrevocable trusts designed to hold assets for seniors who seek to qualify for Medicaid if they need to go into a nursing home.

The trustee owes a fiduciary duty to the beneficiary.  Trustees should be organized, competent, and capable of making sound financial decisions.

          C.  Power of Attorney: Agent

A principal uses a POA to authorize an agent to make financial or business decisions on the principal’s behalf.  It is one of the most powerful documents a person can execute.  The principal can grant the agent many powers including the ability to buy and sell property and open and close accounts.  Thus, an irresponsible agent could bankrupt a principal.  An agent should be highly astute with regard to money matters.

Under New York’s new POA law, a principal can appoint a monitor to oversee an agent, who is usually paid.  A monitor should be competent to review the power that the agent is exercising.  Attorneys, accountants, or other professionals may be good choices.

          D.  Health Care Proxy: Health Care Agent

A principal uses a HCP to appoint a health care agent to make medical decisions if the principal becomes incapacitated.  The health care agent should be calm and capable of making decisions under stress.

III.  Co-Fiduciary Conflicts

Often, parents select multiple children to act as their co-executors, co-trustees, or co-agents.  In some instances, fiduciaries are authorized to act separately.  Sometimes, they must act together.  If the fiduciaries cannot agree, there will be a problem and, potentially, a stalemate that delays action.  Historically, if siblings or others have been hostile to one another, the estate plan is not the place for a team-building exercise.  People should be realistic and practical when choosing fiduciaries.

About the Author:  Bryan L. Berson, Esq. is an attorney and mediator at The Berson Firm, P.C., a commercial and civil law firm that handles estate administration and planning, real estate, commercial transactions, mediation, and commercial litigation.  His e-mail is bberson@bersonfirm.com.  His phone number is (631) 517-1055.  Connect with The Berson Firm on Facebook and Bryan L. Berson on LinkedIn.  The firm’s website is www.bersonfirm.com.

Disclaimer:  Constructive Knowledge is published by The Berson Firm, P.C. (the “Firm”).  The information contained in this column is provided for informational purposes only.  It is not tax or legal advice on any subject matter.  No readers, clients or otherwise, should act or refrain from acting on the basis of any content without seeking appropriate legal or other professional advice with respect to one’s particular circumstances.  This column reflects a general discussion of the law in New York.  It may not accurately reflect the law of other states.  The content is general information and may not reflect current legal developments, verdicts, or settlements.  The Firm expressly disclaims all liability with respect to acts taken or not taken based on any or all content of this column.  This column is Attorney Advertising.  IRS Circular 230 Legend:  Nothing in this column is intended to be used and cannot be used to avoid U.S. federal, state, or local taxes.  It was not written to promote, market, or recommend any tax planning strategy or action.  Copyright:  All rights reserved.  No part of this publication may be reproduced without prior written consent.  Readers may share this column through, but not limited to, social networks.

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Tags: agent, executor, fiduciary, guardianship, health care proxy, power of attorney, trust, trustee, will