Managing the Key Players in Your Estate Planning Strategy (Your Heirs, Beneficiaries, Executors, and Trustees)

In last week’s story, we reviewed the major potential “surrogates” in Estate Planning Strategy (the agents, trustees, executors, and others).

Today we offer some pointers for reducing problems you may face with surrogate designations.

Know all the surrogates you designated

Review financial accounts, insurance policies, and estate planning documents to be sure you know who currently is named to the different roles.

Understand the different roles

Some surrogate positions need a minimum level of financial sophistication and the ability to work with your lawyer, accountant and other professionals.

The agent for your advanced medical directive needs to evaluate recommendations from medical professionals and make decisions about your care and treatment.

Evaluate family members vs. professionals

Most people automatically appoint one or more family members to these positions.

Family members are likely to be very familiar with you and the rest of your immediate family and know your history and goals. The same can apply to close friends.

However, there are potential disadvantages to family members as surrogates.

Family could be too close or emotional to handle the job well. A family member also might have biases about other family members or unsettled disputes and grievances.

Appointing one family member could offend other family members and cause conflicts. Of course, there also might not be anyone in the family who is capable of doing the job.

Professionals also have pluses and minuses. They bring experience and expertise. There also is likely to be an organization that can handle a range of issues, even those that weren’t expected.

But professionals might not be very familiar with family history or dynamics or even interested in it.

They also might not adapt quickly to changing circumstances. Of course, professionals will charge fees for their services, and substantial fees in some cases.

Consider joint responsibility

One way to resolve the family versus professional issue is to appoint both.

The trend is to appoint more than one person or entity to many of these roles.

For example, when a trust has money to invest and distribute, several different skill sets are needed.

One skill set is to have custody of the assets, execute transactions, account for everything and file tax returns.

The trust assets also must be invested; that requires different skills. Distributions to beneficiaries are a different area, and trustees often have some discretion.

Making those decisions well requires knowledge of the individual beneficiaries, as well as your goals and intentions.

Because of the very different roles, many people now appoint co-trustees with each being assigned different duties. An institution, such as a bank or trust company, is named to administer the trust, keep records and file tax returns.

An investment management firm can be named to manage the investments.

Or a committee of family members and your professional advisers can choose investments and investment managers.

Another group of individuals who know you and your family could determine the timing and amount of distributions.

Some of the positions are too small and discrete for multiple appointees. But executor, trustee and agent under a power of attorney are good candidates for co-surrogates who either act as a committee or have separate roles.

Appointing more than one person to each role during estate planning also reduces the risk of fraud, abuse, embezzlement and similar actions.