NAMING YOUR ESTATE REPRESENTATIVES –CONSIDERATIONS AND PITFALLS
Courtesy Bradley & Riley PC, Linn County LIVING WELL Magazine
The estate planning process involves creating documents for management of your financial assets (both during your lifetime and following your death) and creating documents authorizing healthcare decisions while you are alive, but incapacitated. A critical part of the process is deciding who should act on your behalf during your lifetime or on behalf of your estate after your death. The individuals or corporate entities you designate to fill these roles are generally referred to as your representatives or your fiduciaries. Attorneys and advisors can give advice about such designations, but ultimately you must decide who should be listed in your estate planning documents as your representative(s).
Your will should specify who will serve as executor of your estate. The court formally appoints an executor after your death. The executor is charged with gathering your assets, filing necessary tax returns, paying valid creditor claims, and then distributing any remaining property to your beneficiaries as specified in your will. An ideal executor is a good communicator, responsible, trustworthy and diligent in handling tasks, as the probate process requires the performance of certain tasks by specified deadlines.
A common question is whether it is possible to name more than one executor. The answer is yes, but you should be aware that executors must make unanimous decisions so it is important to consider the relationship among the named executors. In some circumstances having co-executors is feasible, however, it can prove problematic when the individuals have a strained relationship or do not communicate or work well together.
We sometimes see parents name all of their children as co-executors in their will, when one or more of the children have no interest in serving. In those cases, the designated child may feel obligated to serve because they were named, but their actions demonstrate their lack of interest in fulfilling that duty. Unwilling executors can slow down the process and/or create tension with the other executors and the beneficiaries. The better approach is to discuss your preference with the desired executor(s) before the actual designation is made in your will so you can avoid naming unwilling executors.
It is also possible, and in certain circumstances advisable, to name a corporate fiduciary to serve as executor. Corporate fiduciaries can be found in the trust departments of many financial institutions and national brokerage houses. The advantage to naming a corporate fiduciary as executor is that the corporate fiduciary has past experience handling estate administrations, has software to track and easily share the estate finances, and will likely be in existence at your death. Additionally, a corporate fiduciary can prove beneficial when family strife or disagreements are anticipated following a death. The downside to naming a corporate fiduciary is that the fiduciary will charge a fee for serving as executor, while a family member may be willing to serve without a fee.
If you have a minor child (under the age of 18), then your will needs to specify the individual(s) you wish to serve as guardian of that minor child. The guardian(s) will be responsible for the physical care of your minor child. If you are no longer living or if you are incapacitated, the minor child will live with the guardian and the guardian will make educational, religious, and other decisions regarding the raising of that child. The court appoints the guardian(s) after considering known facts and circumstances, including careful consideration of your specified wishes, and making a determination of what is in your minor child’s best interests.
The most important consideration is whether the guardian(s) will be able to provide a stable and loving environment for your child or children. As with the executor designation, it is very important to discuss the guardian designation with the named individuals to ensure that they are willing to assume such responsibility. It is also important to make sure that assets are available to support your minor children if the named individual does not have the financial ability to support and raise additional children.
A trustee invests and distributes funds that are held in a trust. This can be a trust created in a separate document or a trust created under your will. The considerations for naming a trustee are very similar to those for naming an executor, except that decisions of co-trustees are made by majority decision rather than by unanimous decision. It is important to note that a trustee is typically charged with managing and investing funds over a longer period of time (especially if the trust is for the benefit of a minor). Thus, it is important to consider and name a trustee who is trustworthy, prudent with finances, and has financial knowledge (or would hire or work with a financial advisor).
Agent under Medical Power of Attorney
A medical power of attorney designates individual(s) to make medical decisions for you when a physician has determined you are not able to make your own medical decisions. These can include minor decisions such as consenting to dental surgery on your behalf or major decisions such as deciding whether physicians should continue or cease to provide you with life-sustaining procedures. If you name more than one individual as your agent, a procedure for resolving a disagreement between your agents should be included in the document. When designating an individual to serve as your agent, it is again important to make sure that person is actually willing to serve if necessary. Additionally, you should designate someone who has the ability to make difficult decisions in highly emotional situations. Finally, you should choose and name someone who will carry out decisions consistent with your intent. You need to discuss your intentions with that individual, so he or she can fulfill his or her duties.
Agent under Financial Power of Attorney
A financial power of attorney designates an individual, individuals or a corporate fiduciary to manage your financial affairs if you are living, but unable to make your own financial decisions. The agent’s responsibilities include management of your financial affairs, paying your bills, and handling other financial matters that you previously handled for yourself, including the possible sale of your real estate. The court is not involved in the appointment or in supervising the acts of an agent under a financial power of attorney document. If you choose to name more than one individual to serve as your agent, those individuals must make unanimous decisions unless your document specifies otherwise. The designated agents should be honest, trustworthy and have financial knowledge. This designation is very important because it has the power to significantly affect you while you are still living.
Bradley & Riley PC offers a broad range of services, expertise and experience to clients. Reach them at 319-363-0101 in Cedar Rapids or 319-358-5560 in Iowa City.