Last week, I dispelled the myth that you only need a Will in order to have a proper estate plan. This week, I am focusing on who you give power to in these documents. The person you grant power to under a Will or Power of Attorney is generally known as a fiduciary. As I previously explained a few years ago, a fiduciary is a fancy catch all word for personal representative (which is another way of saying executor, executrix or administrator, administratrix), guardians, agents, and trustees who are all subject to the jurisdiction of the Orphans’ Court in Pennsylvania.
Many times my clients feel a sense of obligation to name their children as their fiduciaries and use birth order as a method of selection. Simply being the first born does not make a person more qualified to handle your finances than anyone else. It is important to consider the nature of the position you are appointing the person to. What kinds of decisions are they going make? What kind of responsibilities are they going to have? Who are they going to have to interact with? How will others respond to them? Then look at the people you are considering for each position. Who will fit best in each position?
Take for example Simon and Helena. They have three children. Eleanor, a doctor who is bad with money, Liam, an accountant, who is suspicious of medical professionals, and Robert, their oldest child who, while fine with money and generally trusting of medical professionals, tends to disappear for months on end and is unable to get along with either of his siblings. Eleanor and Liam, twins, get along well but are not on speaking terms with Robert. Who should Simon and Helena name as their Fiduciaries for the Will, Financial Power of Attorney, and Health Care Power of Attorney?
If Simon and Helena follow the trend of appointing their children in the same order for everything thing, we’ll end up with Robert in charge of everything, with Liam appointed as the alternate, and Eleanor as the second alternate. Imagine this, Simon and Helena are in a car accident and important medical and financial decisions must be made immediately. Robert is on an island somewhere without any way of communicating with the family. Now what? Liam will have to step in and make medical decisions that he might not be well suited for and he will need to handle his parents finances. Fast forward a few months later to when Robert comes back home and wishes to take charge again. Due to his communication issues with his siblings, he refuses to work with them and makes a mess of the finances. Simon ultimately ends of succumbing to his injuries and now Robert must administer his estate, which is considerably smaller due to his financial blunders.
So how could Simon and Helena avoid this situation? If they would have considered the responsibilities of each job and the personalities of their children, they might have made some different choices. My recommendation to them would have been as follows:
- Appoint Eleanor as your primary Health Care Agent. She is particularly qualified for the job, should be able to make informed decisions, and gets along well with at least one sibling. Name Liam as the backup, but make the document binding so that he must follow your wishes, rather than allowing his distrust of the medical world to interfere.
- Appoint Liam as your Attorney in Fact under the Financial Power of Attorney. He is particularly qualified for this position. I’d consider naming someone other than another child as the backup agent since Eleanor is bad with money and Robert disappears for long stretches at a time. Simply because they are your children, does not mean they must be your Fiduciaries. Consider a trusted family friend, sibling, or other family member.
- Appoint Liam as the Executor. If he has been acting under the Financial Power of Attorney he will know the assets and be in the best position to marshal the assets. Name Eleanor next. I’d let your attorney know that she is not the best with money so they can speak to her about having the attorney hold the check book during the estate administration process.
- I would refrain from appointing Robert altogether, or appoint him as the final alternate. It is very difficult to rely on a Fiduciary who is not around and unresponsive. It can stall medical treatment, cause financial hardships, and draw out the probate process.
So when appointing a Fiduciary, consider the job description and the personality of the candidates. When in doubt, discuss your concerns with your attorney. They can often help you work through your thought process and find the right person for the job. The point of these documents is to make things easier, not reward birth order. And finally, don’t forget to discuss these appointments with the people you are appointing prior. Please do this prior to appointing them! I’ve had more than one client return only months after signing their documents to change an agent because the person they originally appointed does not want that responsibility.
Lindsay Schoeneberger is an attorney at Russell, Krafft and Gruber, LLP in Lancaster, Pennsylvania. She received her law degree from Widener University School of Law and practices in a variety of areas, including Estate Planning.