You might have figured out by now that you need an estate plan, which consists of things like a will, trust, powers of attorney and healthcare directives. The people who you appoint in these documents are fiduciaries – which are basically people who make important decisions on your behalf and who are responsible for acting in your best interests.
Before getting these legal documents, you might be confronted with who you trust to manage your finances, property and healthcare decisions. Maybe some of your children are more responsible or tuned into things like money management and healthcare than others. However, selecting certain of your family members to be your fiduciaries could lead to problems. Here are some common issues that you might come across when selecting family members for your estate planning documents, and what you can do about them.
What Is A Fiduciary When It Comes To Estate Planning?
When it comes to wills, you might have heard the term “executor” or “personal representative,” which is someone who settles your estate and who is a fiduciary for the beneficiaries of your estate. If there is no will, the person administering the estate is called the “administrator.” Another type of fiduciary is a “trustee,” who is someone that oversees, manages and distributes trust assets. Finally, a power of attorney is a fiduciary who makes decisions relating to your finances, healthcare or both. Although a trustee and power of attorney could both manage financial transactions, a power of attorney typically controls assets you own outside of a trust, whereas the trustee controls trust assets.
Notably, fiduciaries have a duty to act in good faith, meaning that they must act in your best interest. For this reason, whoever you designate as your fiduciary should be someone who is ethical, trustworthy, and who is able to carry out your wishes when you are no longer in a position to do so. Fiduciaries ought to have at least some financial expertise and must be capable of resolving disputes – especially in situations where the decisions they make might allow them to benefit financially at the expense of others.
Naming Your Child As Your Fiduciary
In a perfect world, each of our siblings loves and trusts each other. In the real world, however, siblings often face serious conflicts with each other. Adult children argue about things like inheritance and whether one parent has favored or plans to favor one child over another. Also, conflicts can arise between siblings when one sibling is named by mom or dad as a fiduciary and this affects the current or future financial interests of the other siblings.
Significantly, giving all of your children equal power to watch over your assets may be unnecessary and actually lead to gridlock. This could be detrimental to all of your children since disputes could take time to resolve and even become costly through lawsuits and other dispute resolution measures. However, selecting only one of your children as your power of attorney, trustee or executor could raise questions and concerns from you and your other children about that appointed child’s competence. It could also raise questions about whether that child will be fair to his or her siblings.
Suppose that your assets are managed for the benefit of your children in trust with only one child named as trustee. If that child is more of a risk taker but your other children are conservative and risk averse, then it becomes important for that child to take all of the children’s risk tolerances into account before making investment decisions. One of the siblings may be well off financially and therefore want trust assets to remain invested on a long-term basis, while other children may be in less than ideal financial circumstances and want trust assets to be sold and distributed to them.
Another issue that could arise is if you appoint your child as trustee to manage a trust which has been set up for the sole benefit of one of your other children who might be disabled, irresponsible, has problems with creditors, or has substance abuse problems. If your child trustee has the discretion to distribute assets to the other child only if certain terms are met – such as being sober or not subject of any current lawsuits – then it is important for your trustee to withstand that child’s requests for trust assets when the terms for making distributions have not been met.
Another commonplace family dilemma involves stepchildren. For example, suppose you are remarried and appoint the children you have together as trustees of a trust established for the benefit of your spouse until his or her death, with the remaining assets to be split equally among those children and your children from a prior marriage. This could be a major problem because your trustee children might try to deplete a large portion of the assets for your spouse’s benefit and indirectly their benefit while leaving your other children with little or none of your inheritance when your spouse dies.
Overall, the trustee must take opposing views from beneficiaries into consideration from an objective standpoint and figure out a solution which most closely fits all beneficiaries’ needs. So as a fiduciary, your child must be able to regularly communicate well with the other children and take conflicting views into consideration when making decisions.
Selecting Professional, Corporate Fiduciaries
Sometimes children are not the best choice when it comes to being your trustee, executor or powers of attorney – particularly if family members are irresponsible or inexperienced with managing finance or healthcare matters. In situations like these, the solution may very well be to hire a professional third-party fiduciary – also known as corporate fiduciaries and independent fiduciaries – which includes trust companies, banks and certified public accountants.
A professional fiduciary is someone who you pay to serve as your executor or trustee and who manages, administers and distributes your assets according to your wishes. Since they are not named as your beneficiaries and do not have a relation to your children, it is less likely that there will be a conflict of interest resulting in one beneficiary being treated better than another or treated in a manner which conflicts with your wishes. Of course, it is also possible for one or more of your family members and a professional fiduciary to work together as co-fiduciaries.
Indiana Estate Planning Attorneys
Conflicts from selecting fiduciaries and beneficiaries can be avoided through careful estate planning. Perhaps one of your children should be your fiduciary, or maybe all or none of them. There are a variety of ways in which you can designate fiduciaries and beneficiaries without causing rifts in the family, such as giving authority to your children for some things but not for others, or by establishing separate trusts for each beneficiary with special instructions. However, this should be discussed with an experienced Indiana estate planning attorney. For more than two decades, the attorneys at Hawkins Elder Law have helped countless clients with preparing estate plans that are tailored to their needs and which provide for the effective management of their assets. Founders Jennifer J. Hawkins and Jeff R. Hawkins are Board Certified Indiana Trust and Estate Lawyers, certified by the Trust and Estate Specialty Board. If you or a loved one is thinking about estate planning, feel free to consult with Hawkins Elder Law at (812) 268-8777 today.
About the Authors
Jeff R. Hawkins and Jennifer J. Hawkins co-author the Hawkins Elder Law blog with Thomas E. Hynes, a lawyer who is admitted in Pennsylvania, New Jersey and Florida with a background in estate planning and elder law.
Jeff and Jennifer Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers. They are also active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois.
Jeff is a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation. He is also a member of the Illinois State Bar Association and he served as the 2014-15 President of the Indiana State Bar Association.
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