Choosing the right people to carry out an estate plan is just as important as designing the plan correctly. We spend a considerable amount of time with our clients discussing who should fill financial roles in their estate plans. Those roles include estate administrator, durable power of attorney, and trustee of an ongoing trust for a minor or special needs beneficiary.
When it comes to financial roles, our clients must choose either a corporate fiduciary, such as a bank or trust company, or an individual. This post discusses situations in which a corporate fiduciary may be the right choice for our clients.
Individual is the Default
Most of our clients name an individual (typically, a child) as estate administrator and in the other financial roles. Most of our clients have a close family member who is trustworthy, a sound financial manager, and a good project manager who works well with others. In those cases, the best option will be to name that individual.
In our view naming a professional is done when there are specific circumstances that suggest an individual is not the best choice.
Lack of Individual Options
Clients without children, close family members, or close friends to serve in financial roles may decide to use a corporate fiduciary. Other clients may prefer to use a corporate fiduciary if they feel their family members or friends are unable to serve in financial roles due to unavailability, lack of ability, or concerns about trustworthiness.
Complex Assets
Most individuals have a home, investment accounts, personal property, and vehicles. Generally speaking, those types of assets can be handled by an individual. Clients who own businesses or have significant real estate holdings or a complex plan need someone with a higher level of expertise in business matters than is required by most. They are correspondingly less likely to have an individual available who has the necessary skill set. In those cases, choosing a corporate fiduciary may be the best option.
Charitable Giving
Generally, clients who are naming an individual name someone who is also a beneficiary in their will or trust. It is a lot to ask of a friend or family member to settle someone’s estate, then give all of their property to charity. Clients planning to leave their estate to charitable organizations are often better served using an experienced professional for their settlement work rather than asking a friend or family member.
Family Dynamics
Sometimes clients choose a corporate fiduciary because they are concerned their beneficiaries (usually their adult children) might be upset with their estate plan, and they do not want any one child to take on all the blame. Similarly, in families where adult children do not get along, clients may opt for a corporate fiduciary to avoid choosing one child over another and worsening the strained relationship.
Conflicts of Interest
Clients sometimes choose a corporate fiduciary to prevent conflicts of interest that can occur when an estate administrator is also a beneficiary. For example, if a beneficiary will be buying a business from the estate, that individual should generally not also be the person responsible for getting an appraisal and determining the value of the business.
Considering the Cost
Professional fiduciaries are paid, typically based on a percentage of the assets that are part of the estate or trust. Generally, that percentage is between one and two percent. These fees reduce the amount that is available to be distributed to the beneficiaries.
Professional fiduciaries would argue this is illusory to some extent. An individual administrator is also entitled to compensation based on a percentage. And even when a family member does the work for no compensation, there is still a cost to them in time. However, for most clients the cost of a professional means that a professional fiduciary is chosen only if no suitable individual is available.
Have Questions?
Our firm has advised hundreds of families regarding their choice of administrator. If you are considering using a professional administrator in your plan, the first step is to schedule a no-obligation consultation. We look forward to hearing from you.