Your choice of a trustee or executor (personal representative) to manage your finances and estate after your death or disability can be a difficult decision. Consider that the person in charge, generically called a “fiduciary” in legal parlance, must pay your debts, expenses and taxes, and occasionally litigate these matters or the validity of the trust or will. Then after a year or more, the estate or trust must be distributed, or held in further trust for many years. During this process, the fiduciary must deal with lawyers, accountants, financial advisors, the IRS and the courts. And the fiduciary could be sued by a creditor or a family member as thanks for all the effort. Even with professional assistance, it’s essentially a full-time job.
Having said, many folks name a family member (e.g. a son or daughter) as their fiduciary, as a matter of course. But consider some of the benefits and pitfalls of naming a loved one as fiduciary. Some of the benefits include:
- Fiduciary fees can be and are sometimes waived or reduced;
- Personal knowledge of the family and sensitivity to family matters and circumstances; and
- Experience in handling family assets and businesses.
Some of the pitfalls include:
- Lack of fiduciary experience and knowledge;
- Sibling or other family rivalries;
- Additional costs of hiring professional advisors including legal, accounting, insurance and financial;
- Personal time commitments preventing or delaying necessary actions, especially if the appointed relative lives out of state; and
- Mortality and morbidity risks (death or disability), and the risk of theft or malfeasance.
One alternative is a corporate trustee, i.e. a bank or trust company. Certainly, corporate fiduciaries have the impartiality, experience and expertise to handle most all fiduciary appointments. Corporate fiduciaries handle most aspects of administration, including but not limited to, investments, tax filings, legal matters (often via experienced in-house counsel) and distributions. And of course corporate fiduciaries cannot die or become disabled. However, corporate fiduciaries may not be familiar with family dynamics or business enterprises, and the fee structure makes some appointments unreasonably expensive in light of the size of the estate or trust. In fact, a corporate fiduciary may decide not to accept a given trust or estate based upon the value or the nature of the assets (e.g. closely held businesses or real estate), even if named in the instrument. Moreover, a corporate trustee’s accounts are managed by trust officers and committees, and, well, investment and other decisions can be conservative and bureaucratic. And personnel leave or change positions, so from time to time there will be new trust officers not familiar with the circumstances of your estate or trust.
Another option is naming an attorney or law firm. Advantages include the firm’s experience, familiarity with the wishes of the decedent, family dynamics/businesses and the terms of the trust or will instrument, and the ability to choose financial, accounting and insurance advisors, etc. without restriction, including the decedent’s former advisors if suitable. Moreover, counsel can usually render legal services without additional charge. Potential disadvantages include higher fees and costs than corporate trustees due to the need to hire outside advisors, individual lawyer mortality and morbidity, and ethical conflicts preventing counsel from serving. In fact, it is appropriate for a client to consider hiring an outside attorney to review the proposed documents, fee arrangements and the like before asking the drafting attorney to proceed.
AEGIS Law offers fiduciary services for those interested. We can be named in your instrument or appointed after death or disability with the consent of the family or courts.
We will be pleased to discuss your fiduciary options including the pros and cons of each choice, and follow your ultimate wishes by drafting your estate planning documents accordingly. Interested or have questions? Contact your AEGIS attorney, or Norman S. Newmark, head of AEGIS law’s fiduciary services ([email protected] or 314.454.9100 x117), for more information
Norman Newmark’s practice is focused on tax, estate planning and corporate matters, and he serves as the head of the firm’s tax department. He has an extensive transactional practice involving sophisticated trusts, business entity formation, mergers and acquisitions, buy-sell agreements, and other recognized planning for individuals, health care practices, businesses and non-profit entities. Norman handles probate matters ranging from ordinary estate administration to trust litigation. He has represented individuals and businesses before the Internal Revenue Service and the tax departments of various states. As part of a bar subcommittee, Norman drafted key provisions of the Missouri Uniform Powers of Appointment Act recently passed by the Missouri General Assembly and signed into law by the governor.
