Choosing a Fiduciary

Loyalty, Honesty and Trust

By Julie Garber, About.com Guide

A fiduciary is a person or institution given the power to act on behalf of another in situations that require great trust, honesty and loyalty. Fiduciaries you may already be familiar with include accountants, attorneys, bankers, business advisors, financial advisors, mortgage brokers and real estate agents. These individuals are hired to act in your best interest and must set aside their own personal motives in favor of your goals.

When it comes to estate planning, you'll be selecting a variety of fiduciaries to act on your behalf:

• Personal Representative/Executor - This fiduciary will be responsible for administering your estate in accordance with the directions contained in your Last Will and Testament; can be one or more individuals and/or an institution such as a bank or trust company
• Trustee - This fiduciary will be responsible for managing the assets that you title in the name of your Revocable Living Trust or any other type of trust you create in accordance with the directions contained in the trust agreement; can be one or more individuals and/or an institution such as a bank or trust company
• Health Care Agent/Surrogate - This fiduciary will be responsible for making medical decisions on your behalf in accordance with the directions contained in your Advance Medical Directive, also called a Medical Power of Attorney or Durable Power of Attorney for Health Care; can't be an institution or a health care provider who is currently treating you
• Attorney in Fact - This fiduciary will be responsible for managing assets that are titled in your individual name in accordance with the directions contained in your financial Power of Attorney; can be one or more individuals and/or an institution such as a bank or trust company
• Preneed Guardian - This fiduciary will be responsible for taking care of you and your property if you're determined to be mentally incompetent by a court and in need of a court-appointed guardian to manage your affairs; you can designate this fiduciary either in a free standing legal document or in your Advance Medical Directive or medical or financial Power of Attorney
• Guardian for Minor Children - This fiduciary will be responsible for taking care of your minor children in the event you die while the children are still minors; you can designate this fiduciary in your Last Will and Testament

In some cases the person you name to serve as the fiduciaries in all of your estate planning documents will be one in the same person. For instance, if you're married, your spouse may be named in all capacities. If you're single, however, you may decide to name different people or institutions to serve in different capacities. In addition, it's important to choose one or more alternative fiduciaries if your first choice can't serve, or a court will be required to select a successor for you.

When it comes time to make a decision about a fiduciary, the person setting up this arrangement should not make that decision lightly. Just because a child or a friend or a trusted advisor are close to the person setting up the arrangement, this does not mean that any one of these people would be a good fiduciary. It should also be remembered that fiduciaries, in most cases, can or should be reimbursed for their efforts. Thus, the decision should not rest on whether the elected person has the time or is willing to do it free of charge.

Sometimes the best choice is a disinterested third party. Trust companies fill this role.

Trust companies are valuable partners in the management of trusts and in the process of estate planning. These companies, for a small fee, will manage and invest assets, maintain escrow accounts, hold property pending an exchange sale, provide life insurance and income annuities and provide safekeeping of valuables.

Many people who create trusts or wills or both will designate a trust company or bank to be a trustee for their property instead of using a member of the family or close friend to do this. The reason is that, all too often, assets are mismanaged or even stolen by family members or friends. Using a trust company that has a legally mandated, government-supervised fiduciary obligation avoids this problem.