One of the most significant decisions to be made during any estate planning process, and one which all too often receives inadequate attention, is the decision as to who is to be appointed to carry out the plan which is being devised.
This is crucially important, as it does no good for your architect to prepare an elegant and harmonious plan if the builder is incapable of constructing the dwelling. Almost every estate plan will require the eventual appointment of a personal representative, and many, if not most, will also require the appointment of one or more trustees.
Personal representatives and trustees (and indeed anyone else who has legal responsibility for the property of another) are called “fiduciaries”.
Appointees to the office of personal representative and trustee can come from a number of distinct categories, among them being (a) spouses, (b) children, (c) other family members, (d) business associates or friends, (e) lawyers, (f) banks or trust companies, and/or (g) investment companies. There might well be other possibilities, but this list reflects the choices which are normally available.
As if that number of choices were not enough to deal with, there are also a substantial number of criteria which bear directly upon the question of suitability for such an assignment. Those criteria include (a) skill and experience, (b) dependability, (c) availability for the assignment and sufficient longevity to carry it to completion, (d) ethical awareness and standards, (e) acceptability to the beneficiaries, (f) financial responsibility, (g) susceptibility to conflict problems, (h) degree of independent judgment, (i) fees, commissions or other charges made for the services rendered, and/or (j) any circumstances which might serve as clear counter-indications to such an appointment.
Admittedly, reasonable people can differ with the conclusions that others draw on these subjective criteria. In an attempt to present a useful overview, there is a chart appended which sets out in tabular form the generally perceived “pros and cons” of each category. The following discussion will elaborate somewhat on the cryptic entries on that chart:
1. Skill and Experience. Family members generally are not equipped, either by skill or experience, to serve effectively unless they are assisted by competent advisors. This is not a disabling factor, so long as they have the judgment to procure and act upon qualified advice.
Business associates, depending on their background, education and experience, may have widely varying qualifications. Lawyers generally range from moderately to very highly qualified, depending on a number of factors including practice emphasis, prior training, and experience.
Banks or trust companies have generally quite high skill and experience levels.
2. Dependability. Dependability varies widely among family members and business associates, from downright unacceptable to the very highest standard. The dependability of lawyers is generally moderate to high, and of banks and trust companies quite high indeed.
3. Availability and Longevity. The availability of an appointee to serve in a future appointment, and that appointee’s longevity to carry out the assignment, vary widely. A primary determinant, obviously, is the age and health of the individual. On this score, clearly, the institutional providers rank highest, younger individuals next and older individuals lowest.
4. Ethical Matters. The question of ethics is really two-fold, (a) whether the provider recognizes the existence of ethical problems, and (b) if so, whether the standards employed in dealing with those ethical questions are high.
Non-professionals, needless to say, vary widely in their acceptability under this criteria, principally because they are not equally adept at identifying the ethical problems, rather than because they are willfully unethical in their conduct.
5. Acceptability. Acceptability to the beneficiaries is both a widely varying and particularly subjective criterion. The spouse is usually acceptable because of family considerations; most family members are willing to give the surviving spouse at least the benefit of the doubt.
Appointment of other family members, business associates or a lawyer, varies widely in terms of acceptability. Appointment of one of a group of siblings can occasionally give rise to jealousies and other feelings which can be harmful to the family and to the administrative process, and should be approached with particular caution.
Banks and trust companies, curiously, seem to have a low acceptability level in the context of modest size estates, estates holding assets other than marketable securities, and very large estates. The region of greatest acceptability of banks and trust companies seems to be among the ranks of the moderately wealthy.
6. Financial Responsibility. Financial responsibility, that is, the ability of the fiduciary to make good to the beneficiaries any loss or damage they sustain by reason of the fiduciary’s errors or omissions, varies considerably.
Children’s responsibility is often modest owing to their age, lawyers generally have substantial responsibility, if only because of the existence of professional liability insurance, and banks and trust companies of course have very substantial means and responsibility.
7. Conflicts of Interest. Conflict problems, that is, the problems arising where the fiduciary may have personal interests (economic or otherwise) which tend to interfere with the fair and even-handed administration of the estate or trust, are not at all infrequent.
Typically, fiduciaries who are also beneficiaries have the greatest difficulty in this area, and professional fiduciaries the least difficulty. Business associates may also have significant impediments in this area, and you should be particularly alert for this possibility.
8. Judgment. Independent judgment, that is, the ability to look at all of the facts and circumstances and draw appropriate conclusions, may be the hardest quality of all to measure in a prospective appointee.
Close family members, because of their inexperience and their economic interest in the estate, often rate low in this regard. Professional fiduciaries generally rate high, both because of experience in identifying and dealing with issues and in dealing with them, and because of a lack of personal involvement.
9. Cost of Service. The entire question of cost, that is the fees and/or commissions chargeable by the person or institution selected to perform the service, varies considerably. In most instances a surviving spouse will make no charge and a child or other family member might well do likewise.
Professionals, needless to say, must charge for their skills and efforts. Business associates, even though not professional fiduciaries, also will likely charge for their services, but may have valuable contributions to make in certain types of estates and trusts.
Perhaps it might be well also to mention some issues which are not relevant in the selection process, or are only marginally so. Except in the case where an estate or trust is operating a going business, or has tangible investments which require frequent inspection, the geographic location of the fiduciary is generally not a problem. Rapid communication by telephone, fax machine, e-mail, overnight courier service, and in the unusual instance, video taping, can allow persons in Seattle and Savannah to work closely together. Needless to say, the law of the situs of the estate or trust has to be observed, and generally speaking, counsel at that location employed for advisory purposes, but that rarely presents a problem.
Some states impose restrictions or conditions upon the rights of non-resident individuals and/or banks to act as fiduciaries. Maryland simply requires that a non-resident personal representative must appoint a “resident agent”, and as to corporations, that they may act as fiduciaries only in single or isolated transactions. Frequent transactions involving a non-resident corporate fiduciary require its qualification to do business in Maryland.
Substitutions of Fiduciaries
In almost every instance you should appoint not only a primary appointee, but an alternate or “second choice”. Needless to say, all of the criteria that apply to the selection of the first choice will also apply to the second. You should also be mindful of the problem of appointing multiple personal representatives or multiple trustees who may not be able to work well together.
In all instances you should secure the clear permission of any appointee before causing that person to be named as a fiduciary in a Will or Trust Agreement. You should be open and forthright regarding the responsibilities which you are asking them to assume, and should respond as best you can to any questions or concerns expressed by the prospective appointee.
Generally speaking, you should also invite them to discuss the subject with your counsel if you think the questions are beyond your ability to handle.
The question of alternates and substitutions can be handled in a number of different ways; (a) the client can select and identify a string of alternates or substitutions, to be installed in the order in which their names appear, (b) the incumbent in a particular position can be given the power to appoint his or her successor, (c) the client’s lawyer or law firm can be given the power to appoint the successor fiduciaries, or (d) the beneficiary or beneficiaries can be given the right to appoint.
Each method has its pros and cons but probably, on balance, it is best for the client to select the alternate appointees, unless the trust is apt to last for a long period of time, in which event the difficulty of seeing far into the future suggests the use of other methods.