CHAPTER 6:
CHOOSING OR SERVING AS AN EXECUTOR, ADMINISTRATOR, AGENT OR TRUSTEE: PRACTICAL CONSIDERATIONS
In Chapter Four, we looked at the basic legal tasks and duties of an executor or administrator (personal representatives).
Since trustees and agents under a power of attorney are also fiduciaries, this discussion applies to them, too, as well as their “successors” or backups.
(Note that if you see a reference to “the trustee,” we are referring to whoever is serving at the time – either you as the original trustee or the successor trustee you have named as a backup. )
In the last chapter, we used my own family anecdote to see that the law doesn’t provide an answer to every real-life estate planning challenge. With this in mind, let’s consider some practical aspects of choosing the people you will be relying on to make decisions when you are gone or unable to do so.
Make a bad choice here and you have virtually ensured your planning will fail.
We have mentioned the fiduciary duty several times previously. To elaborate:
A fiduciary relationship is established when one person places trust and confidence in another (the fiduciary) to act with loyalty on their behalf. Courts focus on these very terms. This is the highest duty recognized by the law.
Fiduciaries must avoid conflicts of interest and must not take advantage of confidential information for personal benefit.
Breaching this duty can result in the fiduciary’s personal financial liability – or even criminal penalties in some situations for intentional misconduct. For this reason, it’s essential that whoever you choose as a fiduciary agrees to serve in that role and be bound by that duty.
Married people commonly choose their spouse as the first choice for all of these roles – if they are able. Likewise, for unmarried partners in stable, committed long-term relationships.
Trust is implicit in your relationship and seldom of concern. Financial acumen and other practical factors might be important, however.
But your partner won’t be around forever. A backup will be needed if they die before you, so read on.
The most basic consideration in choosing a fiduciary (or their backup) is to determine whether they are ready, willing and able to do a good job for you. Similarly, if you are asked to serve as an executor, trustee, successor trustee, or agent, carefully consider whether you are prepared to assume the responsibility.
Good judgment and common sense are absolutely required. Legal and financial savvy is certainly a plus, but it is not necessary. You simply must recognize when you need professional advice, to be paid for by the party you are serving. And procrastinators should do everyone a favor and decline to serve if asked.
Honest errors in judgment or simple mistakes – if made in good faith with appropriate care – are (usually) just that; they are not necessarily breaches of a fiduciary duty. It depends very much on the circumstances.
Most commonly, people choose an adult child to serve in the various fiduciary roles we have discussed if and when a spouse is not available. So a few words about that are in order. If you select one of your children to manage your money, affairs, or implement your future wishes, use common sense first. That goes a long way.
Accordingly, the son or daughter chosen should also have common sense, a calm temperament, and the wisdom to seek sound advice when it is called for. Consultation among siblings should be encouraged when practical.
Keep in mind that – when we’re talking about a successor trustee – they may serve for many years after their grantor parents are gone or become incapacitated, depending on what the trust calls for and how the future unfolds. The trust might call for distributions to grandchildren for specified worthy purposes as they grow up, for example.
This might entail “judgment calls.” Who do you trust to make those calls?
Of course, if your executor or successor trustee is also your child, they are likely to be a beneficiary of your estate. They are perfectly within the law to be fair to themselves. It is not a breach of duty for them to receive what you have provided for in your estate plan.
Only self-preferential treatment is prohibited.
But if there are other sibling beneficiaries, they might view their brother or sister with jealousy or suspicion – even without justification. This can turn into an enduring source of family strife. Once bad feelings develop among siblings (and their spouses) – especially over money – reconciliation becomes difficult.
This doesn’t mean you should not name a child as your executor or successor trustee – just give the matter thorough consideration.
If issues like jealousy or distrust look like a potential problem, or if feelings might be hurt, a family discussion about your choices is a very good idea. Better to hash these things out now, while you’re still around to explain things and mediate disputes.
Sons and daughters-in-law often have to be dealt with. Even though your choices are seldom any of their business, they have your child’s ear and can meddle. Good luck with that. How best to handle it depends entirely on the family circumstances.
I usually ask clients who would be the best choice. Then I work with them to come up with a “reason” that won’t offend the others. Maybe one child has a business background, or lives closer or has more time. The other children are often named as the alternate(s). Then I advise the client to blame the choice on me – “That’s what the lawyer said I should do.”
Finally, whoever you choose as a fiduciary should be the type of person who gets things done – neither a procrastinator nor likely to be flustered and stymied if problems arise. Think twice about automatically choosing your oldest child, for example, just because he or she is the oldest.
Maybe your youngest is more qualified. To avoid conflict, many clients have suggested two or more children as co-executors. I have always tried to talk them out of that idea.
In my opinion, co -“anythings” is almost always a bad idea (except when they’re spouses and co-trustees of their own trust). It can lead to conflict, disagreement, and mismanagement.
We’ve all heard the sayings, “Put your saddle on one horse,” and “Too many cooks spoil the broth.” These are age-old idioms for a reason.
Problems with Trusts and Trustees
The same basic issues – such as mental capacity and undue influence – can arise when someone challenges a trust So anyone who attacks the validity of a trust on these grounds bears a very tough burden of proof. A petition to the probate court or a lawsuit must generally be filed, as with a will.
As for misconduct, when the beneficiary of a trust suspects wrongdoing or unfairness by the trustee, there is no probate judge to immediately intervene because trusts avoid probate entirely – but only for the assets held in the trust.
Therefore, if a trust beneficiary’s gripe cannot be worked out directly with the trustee, the beneficiary often must take more complicated and expensive legal steps against the trustee.
By contrast, if beneficiaries of a will suspect misconduct by the executor, they can usually go directly to the probate judge with their complaint.
Keep in mind that while the trust grantors are alive – spouses, for example – they are probably their own trustees as well, and nobody has any right to see the trust documents, much less complain about them. But when the grantor dies and someone else takes over as successor trustee, state laws vary as to what information beneficiaries are entitled to.
Most states require the successor trustee to furnish a copy of the trust document to any beneficiary upon request. The trustee may also be required to keep beneficiaries “reasonably” informed about the administration of the trust with annual reports on trust income, expenses and assets.
A trustee’s mismanagement (or actual fraud) is often not immediately clear. A common question from beneficiaries is, “I’m afraid the trustee is cheating me. How can I get a copy of the trust?” If you are a beneficiary and have questions the trustee won’t answer, it could be simple miscommunication – or it could be cause for concern.
Don’t delay seeing an attorney about where you stand. If misconduct is afoot, time is not your friend.
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