Choosing Wisely

August 14, 2005

Although the recent events involving the death of Terry Schiavo have demonstrated the need for advance directives, such as living wills, powers of attorney, and medical proxy designations, there has been little discussion regarding an equally important matter: selecting the person (or persons) who will act on your behalf in these and other estate planning documents. Choosing wisely can ensure that your wishes are carried out and your affairs are managed well. A poor choice can result in the wasting of your assets, the failure to manage your affairs as you would have wanted, and an often-protracted, and expensive, legal battle.

Your will, trusts (if any), and advance directives designate someone to carry out your wishes as expressed in these documents. For a will, the designee is called the executor, for a trust, a trustee, and for advance directives, the most commonly used term is agent. Regardless of the title, your designee is a fiduciary, who has the duty to act primarily for another's benefit in all matters in which they are involved in that capacity. The executor's and the trustee's fiduciary responsibility is to the beneficiaries. The agent's fiduciary responsibility, under the power of attorney and the medical proxy, are to the incapacitated person who has designated them. If a fiduciary breaches his or her duties, he or she is liable to the person(s) to whom they owe the duty.

There is a natural tendency, when choosing someone to act in one of these special fiduciary roles, to choose an immediate family member, such as a spouse or domestic partner, or one or more children. After all, we often place the greatest trust in those we hold closest to us. However, it is important to candidly evaluate the person(s) you designate as your executor or your agent, to ensure that they are both capable of and willing to act in a way that is consistent with their fiduciary duties. If you appoint someone as your executor, trustee, or agent, simply out of loyalty or because you are unwilling to hurt the feelings of a loved one or friend, then you are inviting disaster. When choosing an individual as executor, trustee, or agent, you should consider the following questions:

• Is he or she mentally and physically capable of carrying out their duties? An aging partner may not be as sharp as they once were, or may have become quite frail, and are therefore unable to manage the estate or look after your affairs.
• Does he or she have an alcohol or substance abuse problem? Such a person may, at best, neglect your care or your estate, and at worst, actively steal from you or your estate to support their habit.
• Is he or she incapable of abiding by your wishes? For example, a child with a different set of religious or ethical beliefs than yours may substitute their wishes for yours, when acting as your medical proxy.
• Is he or she financially irresponsible or reckless? No matter how well meaning they may be, such a person would not be a good choice when handling your finances or your estate.
• Does he or she possess special education or training that would be beneficial? For example, a daughter who is a doctor or nurse may be an excellent choice as your medical proxy. A close cousin who is a financial planner or CPA may make a better executor than a child with no such training or experience.
• Does he or she live near or far away from you? Someone living nearby is generally preferable to someone living further away, particularly when it comes to making life-threatening decisions.

The answers to these questions should help guide your decision-making process, but may not be fatal to the choice of one person or another. For instance, if a spouse lacks particular financial expertise, a co-trustee or co-executor with the requisite experience could be named, or the fiduciary could be directed to seek advice from a particular person or persons before making an important decision. In some cases, decision making duties could be split, for example, by naming a child with financial expertise as your agent under a power of attorney and naming a close friend with medical knowledge as your medical proxy. For trusts, it is common, and frequently prudent, to either name a corporate trustee as a co-fiduciary, or to allow a trustee to name a corporate trustee if he or she needs the additional expertise. Corporate trustees may be particularly useful if, after evaluating family or friends, you conclude there is no suitable trustee among them.

Regardless of who you choose, you should also name a second, and even a third choice for each fiduciary role. Many people choose their spouse as their first designee, followed by a son or daughter, or a close friend. In this way, if your first or second choice is unwilling or unable to act, you avoid the necessity of court intervention. I generally recommend against the use of co-fiduciaries, unless you specify some mechanism for breaking an impasse. In any case, you should speak with your chosen fiduciaries to ensure that they are willing to act as such and understand their duties.

No matter what choices you make when naming your fiduciaries, you should let your family members know who you have chosen and, to the extent you can be honest without being hurtful, why you have made these choices. By doing so, you will have conveyed two important pieces of information. First, your family will know who to turn to when you become disabled or die. Second, any anger and resentment your choices may provoke can more easily be assuaged while you are alive than later.

The responsibilities and trusts that you place upon someone by naming them as your fiduciary are too important for you to make the choice of fiduciary lightly. By taking the time to choose your fiduciaries wisely, you can help ensure that you and your family are left in the best of hands.