What is a Fiduciary and Why Does It Matter in Estate Planning?

When it comes to estate planning, you will often hear the term “fiduciary.” But what exactly does that mean, and why is it important?

Simply put, a fiduciary is someone legally obligated to act in the best interests of another person or entity. Fiduciaries hold positions of trust, meaning they must prioritize your interests above their own at all times.

Common Fiduciaries in Estate Planning:

• Trustee: Manages the assets held in a Trust and is responsible for distributing those assets according to the terms you set forth.
• Personal Representative or Executor: Handles the administration of your estate after your death, ensuring that assets are properly distributed to your heirs or beneficiaries.
• Power of Attorney (POA) Agent: Makes financial and/or medical decisions on your behalf if you become incapacitated.
• Guardian or Conservator: Appointed by a court to make personal, medical, or financial decisions on behalf of a minor child or an incapacitated adult.

Why Choosing the Right Fiduciary Matters:

Selecting the right fiduciary is a crucial decision in your estate plan. The wrong choice can lead to financial mismanagement, family conflicts, or delays in the administration of your estate. It is important to select someone trustworthy, capable, and willing to handle the responsibilities involved.

Potential Pitfalls When Choosing a Fiduciary:

• Conflicts of Interest: If the fiduciary has interests that could conflict with your beneficiaries’ interests, this can cause significant issues and potential legal disputes.
• Lack of Expertise: Managing an estate or trust, or even handling medical and financial decisions, can be complex. A fiduciary without proper experience or understanding can inadvertently make costly errors.
• Personal Relationships: While choosing a family member or friend as a fiduciary might seem logical, personal relationships can sometimes complicate objective decision-making.

Professional Fiduciaries as an Alternative:

In certain cases, it may be advantageous to appoint a professional fiduciary, such as a bank, trust company, or attorney, to manage your estate or trust. Professional fiduciaries bring experience, impartiality, and specialized knowledge to ensure your wishes are carried out effectively.

The Bottom Line:

Selecting the appropriate fiduciary is an essential part of any thorough estate plan. This decision should be made thoughtfully, with careful consideration of the responsibilities and potential challenges involved.

If you have questions about choosing fiduciaries, understanding their roles, or ensuring your estate plan properly reflects your wishes, our Firm would be happy to assist you in navigating these critical decisions.