Tax Law and Business Organization Strategy

Choosing a Fiduciary-Part I of II

Good estate planning requires serious thought when making "fiduciary" (e.g., power of attorney, executor, and trustee) appointments. Black's Law Dictionary describes a fiduciary relationship as "one founded on trust or confidence reposed by one person in the integrity and fidelity of another."  These appointments will dictate who controls, manages and distributes your assets when you are incapacitated or have passed away.

At first glance, it may seem that choosing a fiduciary is a simple decision. Married couples often name each other to serve as agents under powers of attorney, as executor and as trustee. It is also common to appoint the eldest child, a family member, or a close friend to the position. Contrary to what many people think, however, it's not just an "honor" to serve as someone's fiduciary- it's actually a lot of hard work. Additionally, executors and trustees have "fiduciary duties" (the highest duties imposed by law) and can be held legally liable for failing to properly carry them out. Accordingly, it is important that you choose these fiduciaries wisely because they usually have very broad powers which can be easily abused.

Before appointing a fiduciary, consider the following:

  • Do you trust them completely?
  • Can they be objective?
  • Are they financially competent, well organized, and detail-oriented?
  • Do they have the time?
  • If you own a business or farm and ranching operation, do they have the time and talent to oversee and operate it?
  • Are they willing to serve?
  • Will they mind having their actions scrutinized by the beneficiaries?
  • Do they have the financial resources to pay for any damages they cause?
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