Are Your Fiduciaries Trustworthy? (Or Is Your Trustee Trustworthy?)
I believe that choosing your family’s fiduciaries is one of the most important decisions you will make in the context of your financial and personal legacy. The persons or entities that you choose to act on your behalf during a period of incapacity or at your death often have that role and responsibility for a significant length of time; for example, during the period of your incapacity, during the administration of your estate, and the ongoing administration and management of continuing trusts. This can continue for a few months or up to many years. The fiduciary relationship not only affects your personal care and well-being, the personal care and well-being of your beneficiaries, but also the management, safety, preservation and the ultimate distribution of your assets.
What is a fiduciary? The term “fiduciary” is a frequently used term in any estate and financial planning process. However, this term is often misunderstood. In the context of an estate and financial planning, the term “fiduciary” is broadly defined as one entrusted to control property or to act on behalf of and for the benefit of another. A fiduciary must act for the benefit of the person to whom he owes fiduciary duties, to the exclusion of any contrary interest. A fiduciary is held to a higher standard of care than an individual acting on his own behalf.
The most commonly known fiduciary roles are Trustee, Personal Representative, Executor, Conservator, Guardian, or an Agent under a Power of Attorney.
There are a few important things to be considered when choosing your fiduciary:
Is your chosen fiduciary available, willing, and competent? Naming a child, a sibling, or other family member is typically the first “go-to” when completing an estate plan and “filling in that blank” as to who will handle your affairs when you can no longer do so. However, knowing whether that family member would be available to serve, willing to serve, and has the skill set to carry out his or her duties as the fiduciary is an important consideration.
Family member or institution? Sometimes choosing that family member who has the availability, the willingness and the skill set necessary to carry out their duties is the right answer. You might also ask yourself, however, if choosing an institution instead of or alongside a family member might be a better choice. Ask yourself: If a family member is put in a position to handle my care, well-being, and financial matters, will they be able to navigate the family dynamics, emotions and varying interests of the other family members? Perhaps choosing an institution to serve instead of or alongside a family member would relieve some of the emotional and difficult conversations and decisions that are required.
Can the fiduciary be removed or replaced? Who will serve if they cannot? It is very important that your estate planning documents include provisions for the fiduciary to be removed by someone (the beneficiaries or a trust “protector”) in the event they are not doing a good job. Additionally, you should give your fiduciary the option of resigning if they become unable to continue serving in that capacity. You certainly don’t want to force someone to serve as your fiduciary if they have no interest or no time to do so. Having a successor or backup in place in the event your first named fiduciary is not able to serve is an important part of your decision as well. Again, if an institution is named as a fiduciary or co-fiduciary, that will usually ensure that a backup is in place.
Communicate with your fiduciary now and into the future. You should open up a clear and frequent line of communication with your fiduciary team while you are able to do so. Your fiduciaries should clearly understand your goals and objectives as they relate to your wealth, and understand your philosophy and values as they relate to your beneficiaries’ future. They should be able to then carry out your wishes to the very best of their ability when you can no longer do so.
It is my opinion that you should develop a significant relationship with those whom you name to serve in a fiduciary capacity in order for them to serve properly and as you intend. Whether that role begins immediately or at some time in the future, a relationship with you helps your fiduciary team understand your goals, objectives, philosophy, and values, all of which play a part in how your legacy is managed and passed on. If possible, the fiduciary should become acquainted with all your beneficiaries and understand important family dynamics and relationships. Having a prior working relationship with your fiduciaries ensures that the transition to the fiduciary is seamless and can make the transition much easier, especially if the timing of that transition is during a period of grief and trauma when a family member has become incapacitated or has died.
At First Western Trust, we take the role of serving as your fiduciary very seriously. We would be honored to serve in that capacity and work alongside your family members in whatever role you deem appropriate to see that your wishes are carried out during your lifetime, during a period of incapacity or at your death. We work with a network of local professionals including attorneys and accountants, as well as our own financial planners, investment managers and trust officers, all of whom will provide a knowledgeable and ethical infrastructure and backdrop for handling your legacy now and into the future.
First Western Trust has developed a unique private banking process that best serves the Western Wealth Management Client. Through our relationship-based team approach, we work closely with you to become trusted advisors and develop a customized financial plan that supports all areas of your wealth. This allows delivery of a comprehensive selection of services in Wealth Planning, Trust and Estates, Investment Management, Private Banking, Risk Management (insurance) and Mortgage Services, as well as a suite of Commercial Banking Services, including Lending, Deposit, Treasury Management, Employee Benefits & Retirement Consulting, Health Savings Account Advisory and Non-Profit Banking.
Cindy Bragdon is vice president, wealth advisor, and trust officer at First Western Trust, Northern Colorado. To learn more about the importance of choosing your fiduciary, reach out to Cindy here.
Cindy M. Bragdon CFPâ. CTFA. Vice President, Trust Officer, First Western Trust, Northern Colorado