Basics of Estate Planning: Advising Clients on Selecting Fiduciaries

Sep 1, 2017

Blog Author: Stephen C. Hartnett, J.D., LL.M. (Tax), Director of Education,
American Academy of Estate Planning Attorneys, Inc.
This is another in a series of blogs on the basics of estate planning.

Often, one of the most difficult choices for a client to make is the selection of people to make decisions for them. These fiduciaries may have great control over the client’s affairs, typically at times when the client would be most vulnerable or already gone.

Let’s take a look at the various fiduciaries a client might name:

  • Successor Trustee. This person manages assets in the trust. The Trustee might manage the assets during the client’s incapacity and after the client has died. A Trustee might also manage assets being left for a child, whether a minor or even an adult child.
  • Agent under Financial Power of Attorney. A Financial Power of Attorney allows the Agent to make decisions and actions for the client, who is the Principal. The power may be “immediate,” which would allow the Agent to act for the Principal even when the Principal is well. Conversely, the power may be “springing,” or only effective upon the incapacity of the Principal.
  • Successor Owner. A 529 plan might have a Successor Owner in addition to a Beneficiary. The Successor Owner could take the funds and use them however they want and does not have to use them for the benefit of the Beneficiary. A Trust could be the Owner of the 529 plan, in which case the Trustee would have an obligation to use the plan for the Beneficiary.
  • Personal Representative. A client may have assets outside of a Trust which may need to be managed after their death. The person who would manage these assets prior to distribution under the Will is the Personal Representative.
  • Agent under a Health Care Power of Attorney. A Health Care Power of Attorney allows the Agent to make health decisions for the Principal when the Principal is unable to make them.
  • Guardian. If the client has young children or others for whom they have caregiving responsibility, their Will can nominate a person to become the new Guardian.

Clients should be advised to take care in choosing people for these roles who are appropriate and up to the task. For example, the financial management roles, such as the Trustee, Personal Representative, Agent under the financial power of attorney, etc., ideally should be organized and able to manage complicated tasks. On the other hand, the Agent under the Health Care Power of Attorney and the Guardian have different primary duties. Their personal caretaking ability may be more important than their financial ability.

There are many instances in which these decision-makers may have to work together. For example, the Guardian of a minor child will have to work with the Trustee of a Trust for the child’s benefit.

The choice of any fiduciary is of utmost importance and, perhaps most importantly, the client should trust the person and their judgement.

In upcoming blogs, I’ll discuss more on the basics of estate planning.

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Basics of Estate Planning: Powers of Appointment – Part 2
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Basics of Estate Planning: Choosing a Roth or Traditional IRA (or 401k)

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