When you think about planning your estate, you probably focus on who will receive what share of your property. You might not focus as clearly on choosing your personal representative or trustee. Consider your choices carefully: acting as fiduciary is not so much an honor as it is a chore.
What is a fiduciary?
Lawyers use “fiduciary” as an umbrella term, covering various roles that a person might fill on behalf of another. A personal representative (we used to call them executors) are fiduciaries. So are trustees, agents under a power of attorney — and pretty much anyone who handles another person’s finances or personal decisions.
Sometimes fiduciaries act under informal arrangements. If you help your mother write out checks and pay bills, you might have a fiduciary relationship — even though she never even signed a power of attorney. You could even be a fiduciary based on a family member adding your name to their bank account.
A number of legal obligations follow the “fiduciary” title. Anyone acting as fiduciary must keep good records, protect property from loss, pay attention to the beneficiaries’ interests and provide sufficient and accurate information. There are also things a fiduciary may not do — like self-dealing, or favoring one beneficiary over another.
Is acting as fiduciary really hard work?
It can be. Tax returns (and records) require timely and active management. You may not be great at keeping detailed records on your own finances, but that’s not a choice for your fiduciary work. It is important to get good advice and information from investment managers, accountants, lawyers and other professionals.
It is permissible to get professional help. In fact, it is almost always advisable. Sometimes it is absolutely necessary. But hiring professional help does not remove the fiduciary’s obligation to maintain records and control.
If you take on the fiduciary role, be prepared for a learning experience. Expect to read — a lot. Get better proficiency with numbers (if you’re an accountant, we can assume you’re already ahead of the game on this one). And, if we didn’t make this clear already, keep excellent, detailed records.
But how can it be dangerous?
Family dynamics can often be complex. People who think they have been wronged can be reactive, even explosive. Family relationships that worked while Mom and Dad were alive sometimes break down after death of one or both parents.
Consider Iowa resident Richard Burt, who now has a criminal record. His mother left a will dividing her estate into two equal shares. One was to go to her daughter, Mr. Burt’s sister. The other was to be held in trust for Mr. Burt’s benefit. The sister was named as executor (personal representative) of the estate, as well as trustee of the trust for Mr. Burt.
Mr. Burt and his sister didn’t get along very well, and their mother’s death further strained their relationship. The mother’s house, empty after her death, was right across the street from Mr. Burt’s house. When his sister came over to look at it, and figure out what to do with it, Mr. Burt got very angry.
There was a lot of personal property at the house, much of it belonging to Mr. Burt. He had lived there for some years, and had not transferred everything across the street when he moved out. Although his sister had told him to remove his things so she could get the house sold, he had not taken any steps to do so.
The confrontation escalates
While his sister and her husband stood in front of the house, considering the boarded-up windows and doors without knobs (apparently Mr. Burt had taken it on himself to make those changes), Mr. Burt drove up on the lawn, very fast. He jumped out of his car, started yelling at his sister, kicked her to the ground and threatened to kill her and her husband. They filmed most of the confrontation on her cell phone, but she was very shaken and concerned for her safety.
The executor filed a police report. Officers took photos of her leg, showing what appeared to be Mr. Burt’s footprint. They noted her bruises, and the tire tracks in the lawn. They charged Mr. Burt with four criminal offenses. A jury ultimately found him guilty on all four counts.
Mr. Burt appealed his conviction. He claimed that he had a right to access the house, as a beneficiary of the estate and the trust. The Iowa Court of Appeals disagreed, noting that his sister was acting as fiduciary for his benefit, but that he did not have the right to possess or control the property in his own name.
He also argued that his lawyer had been ineffective. The lawyer should have insisted on introducing a copy of his mother’s will, he thought. Actually, the Court of Appeals ruled, that would have strengthened the case against him, as it would have proved he had no right to be on the property, or to threaten his sister. State v. Burt, April 4, 2018.
What if someone else had been acting as fiduciary?
If Mr. Burt’s mother had named an independent trustee, would Mr. Burt have acted as explosively? Perhaps — but adding the family dynamics to the mix almost certainly increases the possibilities for conflict. Though she presumably trusted her daughter completely, it might not have been her best choice to put her in harm’s way.
That’s really our main point in this discussion. When you select an agent, trustee or personal representative, you should not consider it an honor you are bestowing on a selected child or professional. It is hard work, and can sometimes be dangerous. You have a hard time predicting exactly what the family dynamics will look like after your death; choose your fiduciaries carefully.