Estate planning involves appointing a number of individuals to play fiduciary roles, sometimes during your lifetime and sometimes after your death. It is important that you and your appointed representatives understand (1) what fiduciary obligations they have (2) who they have fiduciary obligations to, and (3) what liability they have as a result of those fiduciary obligations.
What is a fiduciary?
A fiduciary is a person or entity appointed to act on behalf of another person or persons. Fiduciaries have an obligation to act in the best interests of those who they represent.
There are a few obvious roles where fiduciary duties come into play in most estate plans. A personal representative of an estate is a fiduciary, acting on behalf of the estate and its representatives. In the same manner, a trustee acts on behalf of a trust and in the best interests of the beneficiaries. An attorney-in-fact is a fiduciary appointed under a power of attorney to act in the best interests of the principal.
Who does the fiduciary owe his or her duties to?
A fiduciary may be acting in the interest of a number of people at the same time and balancing the interests of each individual beneficiary is an important part of the role every fiduciary plays. A personal representative has a duty to act in the best interests of the estate as a whole and not as to any one specific beneficiary. Sorting out the best course of action when beneficiaries are in conflict can be difficult, however a personal representative should always keep in mind who her duties are owed to. Under Minnesota law, state statute provides that the personal representative shall “settle and distribute the estate of the decedent in accordance with the terms of any probated and effective will and applicable law, and as expeditiously and efficiently as is consistent with the best interests of the estate.”
In the same way, a trustee may owe duties to more than one beneficiary, or even more than one class of beneficiaries at the same time. For example, a trust may be held for the benefit of a surviving spouse for that person’s lifetime, with the children of the deceased spouse as remainder beneficiaries. Balancing the duty owed to the present beneficiary, who probably has an interest in getting the most income possible, against the interests of the remainder beneficiaries, who want the trust to have more assets on hand to distribute later, is a very common challenge for trustees.
So how do I choose the right fiduciary?
Your first impulse may be to appoint a close relative or friend to a fiduciary role, because they care about you and trust them to follow your wishes. While that is not a bad place to start, you should also consider their:
- Ability to keep good records.
- Ability to problem solve, deal with conflict resolution, and identify when expert help is needed.
- Willingness to serve.
- Relationship with any other beneficiaries or family members who will be involved in your estate or trust administration.
Choosing your fiduciaries is a key aspect of your estate plan which impacts every other aspect of how things will proceed after you are gone.