What is a Fiduciary and How to Choose the Right One(s)
Deciding who will make medical and financial decisions for you, should you no longer have the mental capacity, can be daunting. It’s important to know the distinct roles to appoint, who makes a good choice for each role, but also what they literally mean.
You will hear terms such as “surrogate decision-maker” and “fiduciary”, sometimes with “fiduciary” only referring to financial appointments. However, per Miriam-Webster (2022), the term “fiduciary” means, “of, relating to, or involving a confidence or trust. Fiduciary relationships often concern money, but the word fiduciary does not, in and of itself, suggest financial matters. Rather, fiduciary applies to any situation in which one person justifiably places confidence and trust in someone else and seeks that person’s help or advice in some matter.” They continue, “The attorney-client relationship is a fiduciary one, for example, because the client trusts the attorney to act in the best interest of the client at all times” (2022).
The fiduciary positions are your agents under power of attorney for property and power of attorney for health care, trustees, and executors. In making these choices of people to act as your fiduciaries, keep in mind what will be expected of them and what authority they will hold.
Power of Attorney for Property
A Power of Attorney for Property (POA-P) is a document that allows you to delegate authority to another person, known as your agent, to act on your behalf in financial matters. The agent may be authorized to act immediately, or only when you are no longer able to act for yourself (known as a “springing” power of attorney).
Examples of the types of authorities you will delegate to an agent under POA-P include
- paying your bills
- managing your investments
- buying and selling real estate
A POA-P can be limited to one decision, or it can be so broadly written that the agent can do almost anything on your behalf. POA forms found online are often broad and do not clearly outline additional powers (or how to limit an agent’s powers). See our related article on online POAs here. The authority you give is dependent upon the document’s language. Powers of attorney are a wonderful tool in the hands of a trustworthy person. Because it comes with tremendous authority, it can be a dangerous tool in the hands of the wrong person.
Who is the WRONG person to choose?
- Someone with a history of personal financial problems of their own
- Someone with severe mental illness or substance abuse issues
- Someone who is unable to manage their own financial affairs (perhaps due to limited capacity)
- Someone who has no knowledge of investments or finances
- Someone who has personal conflicts with your other family members
Who is the RIGHT person to choose?
- Someone whom you trust without hesitation
- Someone who manages their own finances well
- Someone who understands investment and finance
- Someone who has no history of financial problems and is not in debt
- Someone who has the time and willingness to step in and help you if necessary
- Someone who does not have conflicts with your other family members
It is a mistake to name a child just because they are the first born, or to name a child because you are concerned about hurting their feelings. Carefully consider a child’s strengths and weaknesses, and potential for misusing or neglecting their job as your financial agent. It sometimes makes sense to name a person other than a child. There are agencies that serve as professional fiduciaries who can serve as your POA-P.
Power of Attorney for Health Care
A Power of Attorney for Health Care (POA-HC) is a document that allows you to delegate authority to another person, known as your agent, to make broad health care decisions for you if you become unable to make those decisions for yourself. The agent has authority to decide on all health and care decisions, i.e., withdrawal of life support, treatment decisions, placement in residential care facilities, and home care arrangements – unless otherwise restricted in the POA document.
Much like the POA-P, it’s key to choose the right person to stand in this fiduciary role.
Who is the WRONG person to choose?
- Someone who does not have the time to spend advocating for you
- Someone who is not interested in medical issues or not able to be assertive with the medical system
- Someone who may have conflicts, such as a dependent child who lives with you
- Someone who does not understand your end-of-life preferences or who is unable to implement your end-of-life wishes
Who is the RIGHT person to choose?
- Someone who is willing and able to spend time advocating for your care
- Someone who is assertive and willing to research medical options and discuss them with your medical team (or find a new team)
- Someone who understands your end-of-life preferences
- Someone who can make the complex decisions you entrust to them, consistent with your wishes
In addition to Powers of Attorney, you might find the need to appoint the fiduciary role of an Executor and/or a Trustee.
Executor of the Estate
Your executor is the person you select to have the legal responsibility to settle your estate when you die. An executor usually is only necessary if you do not have a trust in place.
Sample duties of an Executor of the Estate
- Coordinate probate matters with your family attorney
- Take custody of and value all your estate assets (or sell appropriately)
- Pay all creditors’ claims
- Close your bank and investment accounts and transfer them to newly created estate accounts
- Distribute your assets to the beneficiaries you’ve chosen in your Will
If a revocable living trust is part of your estate plan, you will need to choose a successor trustee to step in and act if you become unable to act (as you are the Trustee while you are alive). Your trustee is someone you choose to be legally responsible for managing, investing and distributing your trust assets in accordance with your wishes, and for acting in the best interests of your beneficiaries.
Sample duties of a Trustee
- Filing income tax returns of the Trust
- Trust accounting and administration
- Investment management Trust assets
- Trust distributions to beneficiaries per the Trust terms
- Regular communication with and reporting to all Trust beneficiaries
- Coordinating trust distributions with public assistance payments to a special needs beneficiary
Again, you might consider enlisting the services of a professional fiduciary, such as a bank trust or trust company, to serve as a Trustee. It is important not to name a person who has conflicts with any of your beneficiaries. Having the right people in place to handle your financial and health care decisions in the event you become unable to do it for yourself is critical. Give adequate consideration to your choice of agents, trustees and executors!
At Dutton Casey & Mesoloras, we guide our clients in choosing fiduciaries in their estate plans. For more information, please contact us at 312-899-0950 or send us an email at [email protected].
This information is not to be considered legal advice.