For most people, selecting the “right” person to take care of one’s minor children or property after death is the most agonizing feature of estate planning. This problem should not prevent you from signing a will or moving forward with other necessary estate planning, however. You need to have a will in place because the “wishes” or “desires” you may have communicated to others are not legally enforceable, and a great deal of your assets may be dissipated in legal fees if there is a dispute among your heirs about what they remember or imagine about your preferences. A properly executed will ensures that your directions will be followed without any unnecessary expense or court intervention.
What is a “fiduciary?”
The term “fiduciary” denotes a person or institution having a duty to act primarily for another, managing assets or making decisions regarding health and welfare. Most estate plans will include appointment of a personal representative (or “executor”), a guardian for minor children, and a trustee to manage property belonging to minors, incapacitated or disabled persons, or persons needing assistance with financial management.
The personal representative is the person and/or institution who represents a deceased person (the decedent) in carrying out the provisions of the will and settling the estate. The functions of a personal representative include collecting the decedent’s property, paying debts, taxes and expenses, and distributing remaining assets to the beneficiaries specified in the will.
Married couples usually designate the surviving spouse as the first choice to serve as personal representative. If appointment of a spouse is not an available option, think of someone else who is pragmatic and organized, and also sensitive to your family situation and understanding of the needs and circumstances of the loved ones you may leave behind. Geographic proximity to the beneficiaries and assets of the estate is convenient, but not a requirement. The same thing goes for knowledge of business and investments. Your personal representative can hire an attorney, an accountant, or other advisors to help with estate administration. The most important factors are pragmatism, sensitivity to the family situation, integrity, loyalty, and impartiality.
Once you select a personal representative, you should confirm that the person or institution is willing to serve. Any fiduciary you appoint may renounce the appointment after you die, so it’s wise to appoint second and third choices in case your primary choice is unable to serve. After your will is executed, you may wish to send a copy to your personal representative. If not, at least inform your personal representative about the location of the original document, and the location of your important financial documents and asset information.
If you have minor children, incapacitated or disabled dependents, a spouse or children who are inexperienced in financial management, or over $1 million in assets, you will probably establish some type of trust in your will. These trusts are referred to as testamentary trusts, as opposed to inter-vivos, or living trusts, which are established during one’s life. The trustee is the person and/or institution that handles the administration of the trust, managing the trust assets and distributing income and principal to beneficiaries according to your directions. The duties of the trustee generally include investment management, protection of trust assets, and compliance with your intentions in making distributions to beneficiaries. Accounting and tax return preparation are also required. Availability, competence, and fees are important factors in selection of a trustee, but the ability to successfully invest and manage the assets of the trust is probably the most important factor. The handling of the assets of the trust will directly relate to the benefits enjoyed by the beneficiaries of the trust. In certain circumstances, appointment of co-trustees or a professional trustee may be recommended.
The guardian is the individual who will be responsible for your children should both parents die before the children reach the age of majority (18 in Colorado). Once a child reaches age 12, the child may override your selection, subject to court approval. Among the factors you should consider in selecting a guardian are age of the guardian, child-rearing and social attitudes, relative income and lifestyle, the guardian’s own family size and situation, the location and residence of the guardian, religious beliefs and practices, and the anticipated attitude of your children. You may use a memorandum outside your will to change your guardian appointment, as long as the will itself refers to the memorandum and the memorandum is executed with the same formalities as a will.
Failure to appoint a fiduciary – statutory preferences
If you fail to make your own fiduciary selections by will, the probate court will have to appoint fiduciaries for you, using a statutory preference list established under Colorado probate law. This procedure will be an expense for your estate. If you wish to make your own choices and avoid consuming estate assets with unnecessary court procedures, start making a list today of all “possible” candidates for each fiduciary position. Then, prioritize and narrow down the list. Seek guidance from the lawyer preparing your will if you need assistance. And remember, you can change your mind as circumstances change, without completely redoing your will.
For questions about this article please contact Michael Smeenk.