The Don'ts in Choosing a Fiduciary
Entrusting someone to manage assets or make decisions on your behalf is a crucial decision. There are situations where a particular choice may be inappropriate, whether as a power of attorney, guardian, trustee, and executor.
Things to consider
Conflicts of interest
Careful considerations should be given where there are conflicts of interest. If the person has a personal or financial stake in the decisions they’ll be making, it could compromise their ability to act in the best interests of the individual or beneficiaries. By way of example, a potential fiduciary stands to inherit significant assets and may be tempted to act in ways that maximize their own inheritance rather than preserving the assets for others.
Financial responsibility
If the fiduciary is financially irresponsible, they are likely an inappropriate choice. A fiduciary needs to handle finances carefully, make prudent investments, and manage budgets effectively. If someone has a history of poor financial management, debt, or bankruptcy, they may not be suitable. A person with no experience managing large sums of money or investments may mishandle funds or incur unnecessary risks.
Knowledge
The role of a fiduciary often requires knowledge of finances, legal responsibilities, or healthcare (depending on the type of fiduciary). Someone who lacks the necessary skills or is unwilling to learn may struggle in the role. An example would be appointing someone to manage a complex trust when they have no knowledge of estate or tax law.
Reliability and organization
If the fiduciary being considered is unreliable or exhibits disorganized behavior, he or she may not be the best choice. A fiduciary must be diligent, timely, and organized. If someone is habitually late, misses deadlines, or cannot keep track of important details, they may fail in this role.
Health and age
Another practical consideration is poor health or advanced age. If the person is in poor health or at an age where they may be unable to fulfill long-term responsibilities, it could lead to disruptions or the need for a replacement. For example, choosing an elderly parent as the fiduciary for a long-term trust meant to benefit a minor child.
Willingness
If the person expresses hesitation or outright refusal, they may not fully commit to the role or could abandon the responsibilities later. Someone who agrees out of a sense of obligation but does not want the role may neglect their duties.
Emotional challenges
Since a fiduciary should remain objective and make decisions rationally, selecting a person who has emotional challenges or is dealing with personal crises would not be an ideal choice, as it could interfere with their judgment.
Family disputes
Choosing a fiduciary who is part of ongoing family disputes can exacerbate conflicts and lead to biased decisions. Sibling rivalry where one sibling is chosen as the fiduciary might result in perceptions of favoritism or actual unfairness.
Availability
If the person has a demanding career or other commitments that prevent them from dedicating the necessary time, they may fail to fulfill their duties. For example, a busy executive who travels frequently might not have the time to make timely decisions or respond to emergencies.
Legal or ethical concerns
You must always assess legal or ethical concerns. Someone with a criminal record, history of dishonesty, or ethical violations should not be trusted with fiduciary responsibilities, even if they have reformed, because that selection may not inspire confidence.
Respect and understanding
Finally, if the fiduciary doesn’t understand or respect the grantor’s wishes, they might make decisions contrary to the individual’s goals. A fiduciary who doesn’t believe in funding higher education might mismanage a trust intended for a child’s college expenses.
Evaluating the Fiduciary
As the person selecting the fiduciary, you can guard against inappropriate choices by evaluating the person objectively. Assess the potential fiduciary’s qualifications, history, and capacity for the role. You should consider utilizing professionals, if family or friends are not suitable and always appoint a successor fiduciary in case the primary choice proves unsuitable or becomes unavailable at a future date. Establish mechanisms to oversee and review the fiduciary’s actions and monitor their activities. By carefully evaluating these factors, you can avoid appointing someone ill-suited for the fiduciary role, ensuring your assets and interests are managed responsibly.
The attorneys at Weiss & Tom will help you navigate your selections by evaluating the strengths and weaknesses of each proposed fiduciary based on the role they will be asked to undertake. For more information, contact our office to set up an appointment.
