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Amy and Dan Smith’s Planning for Life: Choosing a Fiduciary

May 3, 2017 by Blue Ridge Leader filed under Amy and Dan Smith, Columns No Comments

The choice of an executor or trustee is very important and will likely have long range consequences. Family wounds can linger for years from a mistake or unwise conduct of the person in charge of the estate or trust.

An executor is appointed in the will. His/her job is to identify and the collect the assets of the estate, pay the expenses of administration and the debts of the decedent, and then distribute the balance of estate assets as directed in the will. In the course of his duties, he will normally provide two reports to the Commissioner of Accounts: An inventory of estate assets and an accounting showing what he did with the estate assets, including the final distribution to the estate beneficiaries. In Virginia, the executor takes an oath to perform faithfully the duties of his office and signs a pledge (bond) to that effect.

The job of the trustee will depend on the terms of the trust. In a typical living trust used to avoid probate, the trustee may perform a function similar to an executor. That is, after the death of grantor of the trust, he will identify and collect the assets of the trust, pay expenses and debts, and distribute the balance of trust assets to the beneficiaries designated in the trust. While he has a duty to report to the trust beneficiaries, he usually is not required to report to the court or to the Commissioner of Accounts. The job of the trustee in this case is similar to that of the executor: it is temporary and administrative in nature.

A trust, however, may involve more than administration of assets after the death of the grantor. For example, trusts may be established in a will or living trust for the benefit of the children of the decedent. Such trusts may last until the beneficiary reaches a certain age or the trust could be established for the life of the beneficiary. In such case the responsibilities of the trustee are for a period of years and often involve the exercise of discretion. If the trust authorizes the trustee to distribute for the “health, support, maintenance and education” (commonly used language) of the beneficiary, the trustee must decide whether the particular needs of the beneficiary rise to the level where a distribution would be appropriate.

The selection of a trustee for an on-going trust where discretion is required should be given careful consideration. Often grantors will look to one child to be trustee for the trusts of one or more of their other children. While family knowledge is an important factor in selecting a trustee, thought should be given to the impact on the relationship between siblings if one is in charge of the funds available to another.

If the trust is of some duration, a sequence of successor trustees should be established in the document if possible. If not, a mechanism should be provided for appointing successor trustees such as selection by the serving trustee; that is, the appointment can be done while the trustee is serving so that the successor is named in case of death or disability of the serving trustee. Also, the beneficiary(ies) can be authorized to select a successor.

In some cases, it is wise to have a “trust advisor.” This is a person whose role is passive but who monitors the actions of the trustee. For example, if the trust beneficiary is young or otherwise vulnerable, the trustee could be required to submit annual reports to the trust advisor.

An advantage of having family members serve in fiduciary capacities is that they will often waive their right to fees. This is especially important where the estate or trust account is relatively small. A fiduciary is entitled to pay from the estate or trust for professional investment advice, tax preparation and legal advice when needed.

The foregoing article contains general legal information only and is not intended to convey legal advice. For legal advice regarding estate planning, the reader should contact his/her lawyer. Amy V. Smith Wealth Management, CFP, CIMA offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC. Her office is located at 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. Tel.703 669-5022 and e-mail, www.amysmithwelthmanagement.com. Any opinions are those of Amy and Dan Smith and not necessarily those of Raymond James. Raymond James does not guarantee that the foregoing material is accurate or complete and does not provide legal advice. Dan Smith is not affiliated with Raymond James.

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