Estate planning is a mighty endeavor that often weaves together weighty themes such as legacy, family dynamics, and financial caution.
One of the most important decisions you will make isn't actually about the estate itself -- it's about who will carry out the objectives of the estate in your absence. When creating instructions for your final wishes, it's critical to also select the individual or entity who will steward your estate. This role is referred to as the fiduciary and is entrusted with important responsibilities such as managing your assets. Choosing the right person can make or break your estate.
Know that it is in your power to choose any fiduciary you want. Many individuals opt to choose a trusted family member or friend. However, what if they fumble the ball? Should you opt for someone who does this professionally instead? Can they really be trusted? Are they expensive?
These are all valid concerns, and we're here to address all of them. Keep reading as Trust & Will navigates the world of professional fiduciaries so that you can make the decision that's best for you and your estate.
What is a Professional Fiduciary in Estate Planning?
A professional fiduciary is someone who is hired to manage an estate. According to the Professional Fiduciary Association of California (PFAC), a professional fiduciary is "entrusted to provide financial and healthcare options that ensure their client’s dignity and peace of mind. They provide the experience, resources and knowledge to oversee services like paying bills, legal, investment management, medical care, housing, and nutrition, among other things." (View full definition here.)
In many cases, an individual planning their estate will name an Executor (Will) and/or a Trustee (Trust). These are fiduciary roles, meaning that the person is entrusted working on behalf of the estate and in the best interest of its Beneficiaries. They can choose whomever they wish, and in many cases, the named fiduciary will be a friend or family member.
However, choosing someone who does this professionally is also an option to consider. Let's look at some of their possible roles and responsibilities:
Overseeing Financial Matters: handle financial obligations, ensuring bills are paid on time and the estate's financial health is maintained.
Investment Management: guide the estate’s investments, aligning financial strategies with the estate's best interests.
Medical Care Coordination: manage health-related decisions and arrangements, if you're unable to do so yourself.
Real Estate and Property Oversight: from the family home to investment properties, manage all related affairs.
Legal Affairs: navigate the legal intricacies so that the estate complies with all relevant laws and regulations.
Providing for Dependents and Beneficiaries: securing the needs and future of your loved ones
Benefits of Using a Professional Fiduciary
There are several benefits that can come with hiring a professional fiduciary to manage your estate in place of a loved one. There's a certain peace of mind that comes with handing over the job to somehow who has made a career out of it, rather than potentially burden someone you love who may not have any experience.
Here are some advantages associated with naming a professional fiduciary to handle your estate:
1. Expertise and Experience
Professional fiduciaries are often skilled professionals drawn from the fields of law, finance, or accounting. Their expertise will allow them to navigate the estate through legal and financial complexities with confidence. They'll have plenty of experience in the area of estate administration.
2. Objective Decision-making
Fiduciaries, especially non-family professionals, approach the task without favoring or being biased towards family members. Their objectivity helps navigate emotional complexities often involved in estate management, ensuring that the estate's progress is not influenced by personal preferences.
3. Continuity and Reliability
Family dynamics, especially in the face of bereavement, can be tumultuous and unpredictable. In contrast, the professional fiduciary embodies continuity and reliability. Their commitment to the role is exclusively professional, assuring continuity in the execution of your estate plan.
Considerations Before Hiring a Professional Fiduciary
There are many benefits associated with hiring a professional to manage your estate, but they are not automatically the best choice for your personal circumstances. Be sure to go over these considerations before making a decision for your estate:
Costs and Fees
Professional fiduciaries provide services for a fee that reflects their expertise and time. It's important to carefully review the fee structure to ensure it aligns with the estate's financial capabilities and doesn't impact the assets intended for beneficiaries. Corporate Trustees typically have a fee-based model and charge between 1 to 3 percent of Trust assets each year. Private professional fiduciaries often charge an hour rate for their services instead.
Trust and Confidence
Choosing a professional fiduciary requires placing trust in their abilities. To establish this trust, it is vital to thoroughly research their professional background, carefully review references, and consider client testimonials. By doing so, you can ensure their capability to fulfill their fiduciary responsibilities.
Communication and Collaboration
Effective communication is crucial for connecting the estate planner, the family, and the fiduciary. It's essential to have a reliable bridge that enables transparent and timely communication. The selected fiduciary should be an effective communicator who will collaborate effectively with all stakeholders.
Alternatives to Professional Fiduciaries
Opting for an alternative to a professional fiduciary is not uncommon, especially in situations where the estate is less complex and familial relations are harmonious. Some alternatives include:
Name a friend or family member
It's common practice for estate planners to name a trusted relative or friend to a fiduciary role in their estate, such as Executor or Trustee. This route may save on fees, but it's essential to consider the legal and financial responsibilities that come with this role. It's crucial to have a thorough discussion with the potential fiduciary and ensure they are up for the task.
Use a bank or trust company
Banks and trust companies offer professional fiduciary services, often charging lower fees compared to private professional fiduciaries. However, their services may lack the personal touch and flexibility that a private professional fiduciary can offer.
Plan for a court-appointed administrator
When there is no Will, or the decedent did not name an Executor or Trustee, the court system will appoint an Administrator to carry out the tasks necessary to settle the estate. It is recommended that you name a fiduciary of your choice rather than leave it up to the courts. However, it is helpful to be aware that such systems are in place.
When a Professional Fiduciary may be Advisable
If you're debating between choosing a professional fiduciary or a loved one, it may be helpful to know when the scale does tip in favor of a professional.
Here are some possible scenarios:
Your estate is particularly complex and/or the fiduciary is expected to perform high-level tasks. This might include intricate tax strategies, managing high-level assets, or serving multiple beneficiaries. As an estate planner, it may make you feel uncomfortable to leave this in the hands of a loved one, no matter how much you trust them. During a challenging time (such as while grieving a loss), facing the steep learning curve of managing a complex estate may turn out to be an unwanted burden.
You don't have a good candidate. Perhaps you don't have family members who would be able to assume the role due to geographical constraints, age, or incapacity. Alternatively, you may not have a loved one who meets your criteria. Choosing someone as your trustee means entrusting them with more than just the technical tasks; it's about having confidence in their ability to manage delicate personal and financial situations. While they may not necessarily be an expert in law or finance, some experience would prove helpful. You'll also be looking for qualities such as someone who is fair, honest, reliable and highly organized. With all this in mind, you may realize that it's better to call a professional for assistance.
You're concerned about conflicts of interest. In many cases, when a family member is appointed to a fiduciary role they're also one of the beneficiaries of the estate. Because they're in charge of managing the very assets that they're slated to benefit from, it may cause a conflict of interest that makes it nearly impossible for them to remain completely objective. It could also bring up reasons for other family members to have issues with the arrangement.
Your family has complicated dynamics. Unfortunately, the matter of dividing a deceased loved one's estate can sometimes cause conflict within families. Needless to say, this leads to additional stress during an already-challenging and difficult time. If you choose a family member as a fiduciary, it's helpful to consider their leadership style, their ability to diffuse potential family conflict, and ability to remain impartial. If you are concerned that choosing a loved one as a fiduciary will lead to family drama in of itself, then choosing a professional may be the best option.
Professional Fiduciary: The Choice is Yours
The creation of your estate plan will be filled with highly personal choices. At times like these, it's essential to remember that seeking professional help is not a sign of weakness. Rather, it's a step toward ensuring fairness and peace of mind for yourself and your loved ones.
As you think through the decision of naming your fiduciary (rather it be your Executor, Trustee, or other role), know that you have the option of choosing a professional if that's what is going to give you peace of mind and help preserve relationships.
Professionals exist for this very reason -- to lift the weight off your shoulders so that you can focus on what really matters: making sure the legacy you leave behind will benefit those who matter to you.
While you do need to spend time thinking about which hands in which you want to leave your legacy, you won't have to lose sleep over figuring out how to put an estate plan in place. Trust & Will's intuitive platform helps Americans match the estate plan that will best meet their objectives. You'll simply follow our intuitive prompts and answer questions and we'll do all the hard parts for you! Find out more about how to set up your Trust & Will estate plan today.
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Trust & Will is an online service providing legal forms and information. We are not a law firm and we do not provide legal advice.
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