Choosing the right person to manage your client’s affairs if they die or become incapacitated isn’t easy. It can be even more challenging if your client isn’t married and doesn’t have family members available to step in.
Your client’s parents, children or siblings may either not be available, or not the right fit. Or maybe they feel like those who would be available don’t have the knowledge, discipline or time required to effectively oversee financial matters. The process of having someone manage your client’s affairs when they’re are no longer able to can be quite complicated. It’s therefore extremely important to select capable fiduciaries.
Typically, the decision-makers they need will include:
- A successor trustee to administer revocable trusts they’re responsible for during their lifetime if they become incapacitated and distribute any remaining trust assets or continue administering the trust (depending on its terms) when they die.
- An agent appointed as healthcare power of attorney to make healthcare decisions on your client’s behalf in the event of incapacity.
- An agent appointed as financial power of attorney to make financial decisions for your client related to any assets held outside of your client’s trusts (for example, retirement accounts, brokerage accounts and personal bank accounts).
- An executor to handle the settlement of your client’s estate and the distribution of any assets held in your client’s individual name upon your death. It can feel like an honor to be asked to fill one of these roles, but it also can be time consuming, complex and fraught with liability.
Consider the Qualities You Need
So, what qualities should your client look for when making these critical decisions? Here are a few essential qualities to consider:
- Trustworthiness. Your client needs to have complete confidence in their fiduciaries’ commitment to putting their interests, and those of their beneficiaries, ahead of their own.
- Financial competency. Your client’s successor trustees, executors and agent for financial decisions all must have a solid financial knowledge, money management skills and a strong understanding of their fiduciary duties.
- Availability. Your client should name someone who has the time to dedicate to the work that needs to be done; from discussions with investment managers to responding to beneficiary requests and tracking down property interests.
- Delegation. Look for someone who possesses the most important skill of every successful manager: an ability to identify and surround themselves with the right advisors (attorneys, CPAs, financial experts) to handle what needs to be done.
Consider everything that will be required to settle your client’s estate after they die. Your client’s executor or trustee is likely to need at least six to eighteen months to:
- Identify, collect, value and sell all their assets
- Pay all outstanding debts, liabilities and expenses
- Ensure that all assets are managed prudently and in line with the estate’s distribution and liquidity requirements
- Prepare and file all estate tax returns, income tax returns and court-mandated filings
- Distribute assets according to the terms of your client’s will and trust documents
These responsibilities don’t just take time, they require careful attention to detail and financial knowledge. Your client’s trustee or executors may also need to make difficult asset distribution decisions, such as when tangible property needs to be divided among your client’s beneficiaries. And keep in mind that any errors or omissions could subject your client’s fiduciary to personal liability. Your client may think that by appointing someone it’s a sign of the faith and trust they have in them. But make sure they take time to do an honest evaluation and have an up-front conversation about their intentions. The client should make sure they’re not just able to perform the required duties—but also ready and willing to carry them out.
Understand the Benefits a Corporate Trustee Can Provide
Traditionally, corporate trustees were often thought of as a last resort—when there weren’t family members or trusted individuals around to act, or conflicts required a neutral party. Nowadays, a corporate trustee is often chosen even when competent individuals are available. This is because of the expertise, know-how, unbiased objectivity and professionalism a corporate trustee brings to the table from handling thousands of different trusts and estates. And they’re able to offer extensive in-house and third-party expertise to effectively manage even the most complex assets.
But it’s important to know choosing between an individual or corporate trustee isn’t an either/or decision. Instead, involving a corporate trustee gives your client flexibility to create a structure that works best for their particular needs, for example:
- An individual and a corporate trustee acting as co-trustees for your client’s trust—where the corporate trustee can assume all investment management responsibility and the bulk of the day-to-day administration, but significant decisions, such as discretionary distributions, are shared.
- A corporate trustee as agent for an individual trustee or executor—where all decision-making power lies with the individual but the individual hires the corporate trustee to do all or a portion of the work of the trust or estate administration.
- A corporate trustee for specific assets—where the corporate trustee is responsible for managing particular assets like real estate or an art collection that needs to be sold, or the corporate trustee often may be charged to manage the long-term financial assets while an individual is responsible for the personal assets being used by the beneficiary.
- A corporate trustee with beneficiaries able to act at a certain age—where the corporate trustee has all current responsibilities but the individual beneficiaries can elect to be a co-trustee when they reach a certain age.
- A corporate trustee or executor with individuals as agents—where the corporate trustee assumes responsibility for your client’s major assets upon their incapacity, but individuals are in charge of all personal decisions, including health care and day-to-day financial decisions.
In addition, for ongoing trusts, the use of a Delaware directed trust can provide even more flexibility in designing a governance structure that works for your client.
While corporate trustees are often perceived as an expensive option, it’s important to remember that individuals are also entitled to compensation when acting as a fiduciary. Since individuals typically don’t bring the in-house expertise as corporate trustees, it’s often the individual who ends up being the more expensive option.
Don’t Forget to Put the Right Foundation in Place
To help simplify the settlement of your client’s estate and avoid the probate process, your client may want to explore establishing a revocable living trust in tandem with a durable power of attorney. The former can serve as the foundation of their estate plan—replacing a will as the primary document through which they convey their wishes for the transition and potentially the continued management of their wealth. While the latter (which is only operative during their lifetime) appoints the individual (or individuals) who will step in and act on their behalf if they should ever become incapacitated.
Naming the right fiduciaries to manage your client’s trusts and administer their estate are two of the most important decisions they make to ensure their legacy goals are fulfilled. By knowing their range of options and choosing wisely, they can protect their beneficiaries, and help to preserve harmony through a difficult and stressful time.