Picking the Right Fiduciary

Do you know who to pick as your executor, minor children’s guardian, attorney-in-fact and trustee?


What is a Fiduciary?


Fiduciary is one of those mysterious sounding legal words. Under Washington law, a fiduciary is a person or entity who performs a role or provides services to a principal or beneficiary arising out of a special relationship such as a written document or court appointment. A fiduciary owes particular duties to the principal or beneficiary.  Core duties are loyalty, good faith and honest judgment, impartiality and diligence. A fiduciary must be an adult, and should be someone you trust with your most intimate personal and private matters – your assets and life and death decisions.

Common Types of Fiduciaries

Common types of fiduciaries are personal representatives (the modern term for executors and administrators), attorneys-in-fact, guardians and trustees. Attorneys-in-fact are appointed by a principal under a written document called a power of attorney. There are various types of power of attorney documents, including general, limited or special and durable.  Guardians manage incapacitated persons’ financial affairs and make personal decisions such as where they live and their health care. Durable powers of attorney are often used as a substitute for a formal court-supervised guardianship.  Trustees administer trust estates pursuant to a trust agreement or declaration.

Some fiduciary designations require court approval before becoming effective, such as personal representatives and guardians. Trustees and attorneys-in-fact are designated in documents which do not require court approval or supervision in general, but their role or service usually does not arise until some condition is satisfied or event occurs. All fiduciaries are subject to court supervision or review if an issue of violation of a fiduciary duty arises.

Particular Skills Required

An attorney-in-fact for financial matters should be good at managing finances. Your attorney-in-fact for health care decisions should be emotionally secure enough to make tough decisions without having to agonize over the decision for too long. This person should be at least somewhat familiar with your desires regarding your health care and end of life issues such as removing life supports.

The person you pick as a personal representative, guardian of the estate or trustee must have some financial skills.  The depth of these skills depends on your estate.  If your estate is straight-forward such as financial accounts and a house, the skill level needed is less than if you own interests in more exotic investments or may have complex tax issues. If your estate is big and sophisticated enough, or you desire a high skill level, you may want to designate a professional or institutional fiduciary.

Stay Away from Co-Fiduciaries

Generally, stay away from designating multiple persons to serve as your fiduciary at the same time. Name one at a time in the priority order you desire.  If the higher priority person cannot or refuses to serve as your fiduciary, the nomination falls to the next designated person.

I once had a client who wanted to appoint three co-fiduciaries for each position – attorney-in-fact for financial affairs and for health care decisions and as personal representative. The client felt the co-fiduciaries could keep a watchful eye on each other. An interesting theory, but the potential for disputes is greatly increased. Deadlock is another potential problem with co-fiduciaries. Disputes and deadlock can cause delay and be very expensive if court intervention is required to resolve even a single dispute between co-fiduciaries. Additionally, a three-person decision-making group is inefficient and slow, especially if they do not reside in the same geographical area.

Summary

The fiduciaries you pick must be very trustworthy and honest, capable of making good decisions without agonizing too much over them, and must have abilities commensurate with the type of services they will provide. I generally recommend a single fiduciary act at a time, and you should have backup fiduciaries named in case the fiduciary named first cannot or will not accept the nomination.

THE FOREGOING IS PARTICULAR TO WASHINGTON STATE. LAWS ON THIS SUBJECT MAY VARY FROM STATE TO STATE.

By Robert Hawkinson