If you are completing a Will or Trust, you are selecting persons or firms to carry out your instructions. “Fiduciary” is a term that applies generally to someone who owes a very high duty of care and honesty to another. Guardians, Conservators, Trustees, Personal Representatives and Attorneys-in-Fact are considered fiduciaries. Fiduciaries must always act in the best interest of the person whom they serve. A fiduciary can receive a reasonable compensation for the service. You might choose family members to serve as fiduciaries, but you might choose instead a bank trust office or a professional fiduciary, who is not related to the family. When might a family member be a good choice? When would it be better to appoint a professional? In many cases, a capable family member is available to serve and the issues are not complex. However, if there is potential conflict of interest, or complicated matters to handle, it might be better to put an independent person or company in charge. A variation is to appoint a professional and a family member as co-fiduciaries. The professional has the experience to make sure all steps are followed. The family member would be the liaison with the family members. As I mention later, the professional might not want to share responsibilities.
What qualities are important in a fiduciary? At a minimum, honesty and common sense. A fiduciary can obtain technical advice when needed. For example if there are IRAs in an estate, there are some withdrawal options that have different tax consequences. A CPA can be consulted to estimate the advantages of each option. The estate might include a collection of antiques. The Personal Representative can get advice on how to obtain the best sale price for such items. Is it good to name several people to serve as co-fiduciaries? Often it is. The individuals might bring different talents to the table. The co-fiduciaries must work together. It forces communication. It requires them to talk through and act on each major step. Naming two or more fiduciaries might create a challenge if one lives at a distance. All papers would have to be signed by both fiduciaries. Express or overnight delivery can be used to rush documents back and forth. If the two persons did not cooperate well, it might be better to choose an independent – professional fiduciary instead. A recent Minnesota Court of Appeals case highlighted the importance of choosing personal representatives carefully. Lois died in 2008, leaving an estate of $540,000. Much of the estate was to be distributed to animal protection charities. Lois’ Will named a 30 year acquaintance (Kelvin) and his employee (Elizabeth) as Personal Representatives and asked that bond be waived for them. These people were not professional fiduciaries. They had never served as fiduciaries before. Unfortunately, Kelvin took excessive funds for his own use from the estate. When accounting was finally filed, over $151,000 was wrongfully taken. The charities, of course, objected, but the damage had been done. The court ordered not only Kelvin, but also Elizabeth, to repay $151,000 to the estate.
Elizabeth argued that she was only a co-signer. She went along with Kelvin’s loans, and payments. As an employee of Kelvin, she was afraid that she might lose her job if she objected. That was a costly mistake. She received little, if any, of the $151,000, but she is liable JOINTLY for the entire sum. Several lessons are given in this case. The charities could have requested that the court require that Kelvin furnish a bond. They could have requested that the court appoint one of their officers as a co-personal representative. Elizabeth should have resigned and notified the court if she suspected any wrong doing by Kelvin. We must choose our fiduciaries carefully and periodically examine our documents to see if any changes are indicated. If you are serving as a co-fiduciary, be sure that you are active and involved in all transactions and that you review bank statements frequently.