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Leslie Daff, JD, MBA - Orange County Estate Planning Lawyer

Friday, March 9, 2012

Tax & Estate Planning Tip #10: Selecting and Maintaining Appropriate Fiduciaries in Your Estate Plan

In Tax & Estate Planning Tip #9 we mentioned the importance of carefully selecting and maintaining appropriate fiduciaries in an estate plan and building in mechanisms to remove and replace them when necessary.  People often name spouses, if any, followed by family members or friends as successor trustee(s), executor(s), and agent(s) on financial powers of attorney.  However, in conflicted families or in complex estates, this may not be the best choice.

Where subtrusts are created after the first spouse’s death to protect his or her assets for beneficiaries such as children from a prior marriage, couples may want to consider having someone other than the surviving spouse serve as trustee, or having the surviving spouse serve with a co-trustee. Only in the friendliest families, however, should a remainder beneficiary, such as a stepchild, serve with the surviving spouse because of the conflicts of interest involved.

After the spouse, people often name children to serve.  However, will naming one child cause friction among other children?  If children serve jointly will it be cumbersome to get all signatures for all actions taken?  What is the tiebreaking mechanism if they cannot agree?  People may name other family members or friends for this reason.  But if there is no one with the requisite skills, there are other options, such as naming a CPA or other advisor.

 In a complex or conflicted family situation, a corporate trustee, who brings experience, objectivity, and impartiality to the situation may be a good option.   Corporate trustees should always be considered as a backstop fiduciary in an estate plan because of their perpetual existence.  

 Another option is to name a private professional fiduciary. Although not as highly regulated as corporate trustees, a good private professional fiduciary can provide similar organization skills and objectively.

Estate planning documents should always contain mechanisms to remove and replace fiduciaries when appropriate. Specifically, if an acting fiduciary is incapacitated but will not step down, documents may provide that he or she will have 10 days to submit to a medical evaluation to prove otherwise or the successor will step in.  Documents may also specify that a designated person, or group of people, may remove and replace a “bad” fiduciary, or a trust protector may be named for this role.  If there is a fiduciary vacancy, documents may specify how that vacancy can be filled without having to go to court.

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