People often appoint fiduciaries and accept fiduciary roles as executors, trustees, guardians of minors, and corporate board directors without carefully considering all the personal, financial, legal and emotional ramifications. From our experience serving as a fiduciary and helping people determine their needs, we believe it’s good to seek professional counsel in identifying and naming fiduciaries, obtaining their acceptance, communicating your desires and intentions, and providing for contingencies by naming successors.

Considerations of Selecting a Fiduciary

In most states, anyone of legal age or a qualified institution can be a fiduciary. However, few have the time, resources, knowledge or experience to properly perform this serious legal and moral obligation.

Dividing the fiduciary responsibility between a personal and professional appointment may be best. Trust officers and other professionals are uniquely qualified with the experience and education to represent financial affairs, while a family member or close friend is very useful from a “personal” standpoint.

Fiduciary Responsibility

Unfortunately, instead of using “considered judgment” in naming a trustee or executor, many people only give last minute thought to fiduciaries. Here’s a short list of factors to consider when weighing individuals or institutions for appointment to fiduciary responsibilities:

  • Experience – Does the person have the knowledge and ability to serve?
  • Continuity – Will the person be part of your life in 10 or 20 years, or longer?
  • Investment acumen – Does the person have the time and resources to manage money? Are they monitoring investments regularly and staying aware of changes that could affect funds? Can they handle your current and future assets?
  • Objectivity – Can the person make decisions purely in the beneficiary’s best interest?
  • Fair and equitable – Can the person exhibit fairness to all beneficiaries and comply with your wishes?
  • Diligence and responsiveness – Will the person devote the time and resources to respond to fiduciary responsibilities when necessary?

Responsibilities of a Fiduciary

Understanding fiduciary responsibility is key to properly managing affairs. There are many do’s and don’ts of personal financial and estate planning, all of which should be taken into consideration when selecting a fiduciary or accepting this responsibility. A fiduciary’s role is very broad. People are often called upon to make “God-like” decisions, such as providing trust funds for serious medical emergencies.

Avoiding Fiduciary Conflicts of Interest

Decisions must be made in the best interest of the beneficiaries, and within the framework of your intent. It is wise for parents to name a trustee for their minor children’s inherited estate, and a separate guardian of the child. A guardian may choose to spend the child’s trust fund in ways that were not intended. By naming a separate trustee, you also avoid putting the relationship with the child at risk by requiring the guardian to make all financial decisions. An independent trustee is called upon to make these decisions in the child’s best interest, while the guardian raises the child.

Board of Director Considerations

When asked to serve on the board of directors of a public company, it is an honor and yet carries serious responsibilities to corporate shareholders. You need look no further than the recent corporate debacles to understand how important board directors are to the best interest of shareholders.

No matter what capacity a fiduciary serves in, they must be trusted and qualified to objectively perform their responsibilities. It is truly an awesome responsibility that one should neither accept nor bestow lightly.

Disclosures

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice.

There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments.  Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. 

Diversification may not protect against market risk. There is no assurance the objectives discussed will be met. Past performance does not guarantee future results. Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice.