Choosing the right fiduciaries is an important part of creating an effective estate plan. It can also be one of the more challenging decisions to make.
- A fiduciary is a person or organization entrusted with managing your affairs and making decisions on your behalf when you are unable to do so.
- Depending on the role, this responsibility may include managing financial assets, handling legal matters, making healthcare decisions, or administering your estate after your death.
For many people, these roles are filled by trusted family members or friends. In other situations, a professional fiduciary—such as a bank or trust company—may be appropriate.
Because fiduciaries may be responsible for significant financial and personal decisions, it is worth taking time to consider who may be best suited for these responsibilities.
The sections that follow are intended to serve as a guide for reflection. The topics and questions discussed here may help you think through the people you are considering and identify the qualities that may matter most in your situation.
Key terms
- Executor or Personal Representative
An executor, sometimes called a personal representative, is responsible for managing the affairs of your estate after your death. This role typically includes gathering and managing assets, paying debts and taxes, and distributing property according to the terms of your will or, if no will exists, according to state law.
- Trustee
A trustee is the person or organization responsible for managing property held in a trust. The trustee holds legal title to the trust’s assets and is responsible for managing those assets, making investment decisions, and distributing funds to beneficiaries according to the terms of the trust.
- Agent under Power of Attorney
A power of attorney names an agent who may act on your behalf during your lifetime if you are unable to manage your financial affairs. This may include handling bank accounts, paying bills, managing investments, or making other financial decisions. A similar appointment may also allow someone to make healthcare decisions on your behalf if you are unable to communicate your wishes.
- Guardian or Conservator
- A guardian is a legal representative appointed by a court to make personal and medical decisions for a minor child or an incapacitated adult.
- A conservator performs a similar function but focuses on managing financial matters for a minor or incapacitated person.
Why this decision matters
Fiduciaries are entrusted with significant responsibility. They may be responsible for managing assets, making financial or medical decisions, and ensuring that your wishes are carried out according to the terms of your estate plan.
Because of this, choosing the right person for these roles can have a meaningful impact on how smoothly your estate is administered and how effectively your wishes are carried out.
It is often helpful to speak with the people you are considering before naming them in your estate plan. Serving as a fiduciary can require a significant commitment of time and responsibility, and many people appreciate having the opportunity to consider the role in advance.
Qualities to consider when choosing a fiduciary
As you think about potential fiduciaries, it can be helpful to consider certain qualities that may make someone well suited for the role. Not every fiduciary will meet every ideal standard, but these factors can provide a helpful framework for evaluating your options.
Ability to manage financial matters
For roles such as executor, trustee, or financial agent under a power of attorney, the fiduciary should be comfortable handling financial matters. This may include managing accounts, working with investments, coordinating with accountants, or reviewing financial records. The person does not need to be a financial expert, but they should be willing to seek professional guidance when needed.
Objectivity and judgment
A fiduciary may need to make decisions that affect multiple beneficiaries. For that reason, it is helpful if the person can remain objective and make decisions based on legal responsibilities rather than personal preferences or family dynamics. This quality can be especially valuable when disagreements arise among beneficiaries.
Organization and accountability
Fiduciaries are typically required to follow strict legal and ethical standards. The role often involves careful recordkeeping, managing deadlines, and maintaining clear documentation. Someone who is organized and detail-oriented can help ensure that responsibilities are carried out properly and that legal obligations are met.
Availability and willingness to serve
Serving as a fiduciary can involve a meaningful time commitment. The role may include managing paperwork, communicating with professionals, and making decisions over an extended period. It is important to choose someone who is both willing and able to take on these responsibilities.
While proximity can sometimes be helpful, fiduciaries do not necessarily need to live nearby. With modern communication and professional support, many fiduciaries successfully serve from another location.
Trust and personal integrity
Trust is often the most important factor. A fiduciary should be someone you trust to carry out your wishes responsibly and to handle financial and personal decisions with integrity. Because fiduciaries may have access to assets and sensitive information, reliability and honesty are essential qualities.
Time commitment and compensation
Serving as a fiduciary can require a significant amount of work. Some individuals are comfortable serving without compensation, while others may expect to receive a reasonable fee for their time and effort.
Many estate planning laws allow fiduciaries to receive compensation. As you consider potential candidates, it may be helpful to think about whether compensation feels appropriate in your situation and whether the person you are considering would expect or decline payment.
Age and health
It can also be helpful to consider the age and health of potential fiduciaries. Selecting someone who is likely to remain capable of serving for many years may provide greater stability and continuity in administering your estate plan.
Considering professional fiduciaries
In some situations, people choose to appoint a professional fiduciary—such as a bank, trust company, or professional trustee—to serve in certain roles. Professional fiduciaries may bring experience and technical knowledge that can be valuable in managing complex financial matters.
At the same time, some families prefer the personal understanding that a trusted family member or friend may provide.
Professional fiduciaries can include:
- Large banks
- Regional trust companies
- Independent professional trustees
- Attorneys or other professionals who provide fiduciary services as part of their practice
Although these professionals may not have a personal relationship with your family, they often have specialized training and experience that can help them manage financial and administrative responsibilities effectively.
Potential benefits of a professional fiduciary
Professional fiduciaries often have significant experience managing financial matters, including investments, taxes, and trust administration. This expertise can be especially valuable when an estate or trust includes complex assets or requires long-term management.
Because professional fiduciaries are not personally involved in family relationships, they may also approach decisions with greater objectivity. This neutrality can sometimes help reduce conflict among beneficiaries and ensure decisions are guided by the terms of the estate plan.
Professional fiduciaries are also typically subject to regulatory oversight and professional standards. They often follow established procedures and maintain detailed records, which can add an additional level of accountability.
Another advantage is continuity. Institutions such as banks and trust companies can continue providing service even if individual personnel change. This can be particularly helpful for trusts intended to last for many years.
Potential drawbacks of a professional fiduciary
One of the most common concerns is cost. Professional fiduciaries typically charge fees for their services, although fee structures vary depending on the type of fiduciary.
- Independent professional trustees may charge hourly rates, while banks and trust companies often charge fees based on a percentage of the assets they manage.
- These are commonly referred to as assets-under-management fees. Some institutions may also require a minimum level of assets before agreeing to serve.
- Families may also value the personal understanding that a friend or relative can bring to the role. A professional fiduciary may not have the same familiarity with family relationships, personal values, or individual circumstances.
In addition, professional institutions often operate under formal policies and procedures. While these processes can provide consistency and compliance, they may feel less flexible or personal compared with working with someone who knows the family well.
Situations where a professional fiduciary may be helpful
In certain circumstances, appointing a professional fiduciary may be particularly helpful. This may include situations where a trust is expected to last many years, where significant assets will require ongoing management, or where tax and investment issues are likely to be complex.
Professional fiduciaries can also be useful when family dynamics may make it difficult for one person to serve in a neutral role. In blended families, situations involving potential conflicts among beneficiaries, or circumstances where beneficiaries have very different expectations, an independent fiduciary may be better positioned to administer the plan objectively.
In other cases, families simply may not have someone who feels comfortable taking on the responsibilities of managing financial and administrative matters. In those situations, appointing a professional fiduciary can provide experience, structure, and continuity in carrying out the duties of the role.