Why Estate Plans Are Worthless – Part III
Mar 26, 2018
In this third installment, I am addressing another way that estate plans can be rendered worthless. Simply stated, clients often fail to appoint the right people to serve as attorneys-in-fact, healthcare agents and as executors and trustees.
Most lawyers will provide certain basic estate planning documents including a durable power of attorney for financial decisions, a healthcare power of attorney, a will and perhaps even a trust agreement which may be either contained within the will or a separate document. In each of these documents, the client will appoint individuals to make decisions and to manage the client’s affairs either during life or following death. Appointing the right individuals is crucial. While I cannot say that clients are appointing the “wrong” person in each of these roles, I do see situations where clients do not appoint the best person for the job.
Before delving into that, allow me to explain the duties of each role. The attorney-in-fact and healthcare agent are fairly self-explanatory. However, many clients are confused about the respective roles of the executor and trustee. An “executor”, also known as an “administrator” or “personal representative” is the person who will open an estate, close out the decedent’s personal affairs, file final tax returns, pay the decedent’s debts and distribute the assets to the beneficiaries. In most instances, this is a short term assignment of a year or less. There are many cases where it is necessary for an estate to be open longer, particularly when there is a tax audit, ongoing litigation, will contest, difficulty identifying heirs or selling property. Nonetheless, the job has a definite beginning (opening the estate) and a definite end (closing the estate).
Many clients create a trust either as a stand alone trust or as a trust created in the will. As part of that, the client appoints a trustee who will serve for the duration of the trust. Unlike the executor, the trustee’s duties last for an indefinite period of time and make take years, even decades, to complete. That’s assuming a normal duration and not a trust of super duration as is permitted in states such as Tennessee, Wyoming, and South Dakota. So, if we have the normal trust created for the benefit of a surviving spouse or children, it will terminate upon the happening of a certain event such as death of the spouse, occurrence of an event, or the beneficiary’s attainment of a certain age.
The issue which arises is that the client often makes an emotional decision as to whom to appoint which is motivated by a desire to not to offend anyone. The result, however, is that we have “administration by committee” or persons are appointed who do not have the requisite skill set or personality to complete the task. Just because the son is the first born and does not have anything else to do, does not qualify him for the job. Just because daughter did a fine job caring for dad should not exclude a sibling from being executor who is better able to serve. In other instances, clients appoint all their children to serve a co-trustees under the notion that “they will all get along once I am gone.” Here’s a secret: That never happens. A colleague told me about a case recently in which an estate had been open for over ten years because the daughter was carrying out her vendetta against her brothers.
Also, clients should consider not only the ability to serve but also the capacity to serve both now and later. One client, age 70 at the time, had wisely decided not to appoint any of her children, but she insisted on appointing her long-time attorney, age 88 at the time, to serve as her executor. What’s more, he thought it was a good idea. Ultimately, the client appointed someone else, though I should note that her long time lawyer outlived the client.
Finally, one should consider appointing someone who is fair, impartial and can say “no” and stick to that decision, which is a particularly good skill for trustees.
The moral of the story: Do not render your estate plan worthless by appointing someone poorly suited to serve as a fiduciary.