Tips for Answering the Hard Questions: Estate Planning

Written by: Fargo Inc

Who will raise my children if I die?…

It’s a question every parent has asked him or herself, but the problem is it’s a lot easier question to ask than it is to answer. And if you’re like most, the answer will change over the course of your lifetime, but the gravity of the answer will not. For any parent of young children, the most important decision in their estate plan is exactly this. And the answer won’t ever be less important until the youngest child reaches the age of 18.

In my practice, this is the most important question my clients will answer, but there are a lot of other important questions they must answer as well. Recently, I’ve seen a lot of them struggle with their answers. So I’d like to share what I’ve learned about this most important question and others like it.

The person you name in your Will to raise your children is called a “guardian.” A guardian is broadly classified in the estate planning context as a “fiduciary,” which is defined in Black’s Law Dictionary as, “One who owes to another the duties of good faith, trust, confidence, and candor…One who must exercise a high standard of care in managing another’s money or property.”

In estate planning, the most common fiduciary designations are a guardian, personal representative or executor, trustee, health care agent and attorney-in-fact. Let me help you figure out who should be designated in each of these positions, based on hundreds of conversations I’ve had with clients during the last 16 years.

Roles of people appointed in your will

As mentioned earlier, the most important fiduciary position is naming a guardian. It is reserved for those people who have children who are minors. While this decision is often the most personal to make, I often tell clients to put themselves in the shoes of their children and think about not only who would raise your children like you, but who could make the transition the most smoothly.

And keep in mind that if this position is needed, a minor child has just lost a parent. This is an extreme tragedy. If this occurred and you were in high school, would you want to move out of state? Or would you want to remain in the same community with your same friends? If your children are five and under, would you name an aging parent or another younger couple who can better manage the physical nature of raising small children? Would you name a parent at all? Is that fair to the other grandparents?

What about how many children your named guardian already has?

If you have three kids, does it make sense to name a friend or family member that has four kids of their own? If so, what kind of car will that family need if you die? A bus? You see, there is a lot to consider, but if you don’t ask yourself these questions, your designation is going to be wrong from the start.

The next most common fiduciary my clients select is a personal representative or executor. Both terms mean the same thing. A personal representative is nominated in the Will in the same fashion as a guardian. The nomination does not become official until the person dies and the court approves the nomination.

Once appointed by the Court, the personal representative’s job is to collect the assets of the decedent, pay the bills and expenses of the decedent, and then distribute the remaining property of the estate to the beneficiaries named in the Will. Because most of this job entails organization and managing money, people or professional organizations (like a trust department) who are good at managing money are best suited for this job.

If you choose an individual as your personal representative, my general advice is not to name more than one individual. The nomination of multiple individuals as a personal representative can lead to disagreement between the two and difficulty arranging a time for the two to sign or act simultaneously. Some of my clients persist and will name two individuals, but they should never name more than two.

What do trustees do?

A trustee is a fiduciary position that is only needed if a trust is being created, either upon the signing of the document or within the Will as a testamentary trust. The personal representative’s job is often temporary, lasting until the last of the assets are distributed to the beneficiaries. However, a trustee will often manage assets for the beneficiaries for a longer period of time.

Trustees can also be individuals or organizations; they must be good at asset management, accounting and understanding the needs of the beneficiary. This last characteristic is why many will choose a family member or personal friend to be a trustee. They know how the decedent would want to benefit the beneficiaries. On the other hand, a trust company doesn’t have any personality conflicts, has all of the systems in place and has the expertise to manage just about any type of asset.

You can designate co-trustees, one of which is a trust company and the other of which is an individual and get both strengths. However, you should make sure the two are compatible and are not just creating extra work for the other. Meaning, if your individual trustee spends three months a year in the Amazon Rain Forest, perhaps naming them as a trustee would just frustrate the trust company and lead to needless inefficiencies.

Fiduciaries appointed for lifetime

The last two fiduciary positions that your lawyer will ask you to name are a health care agent and an attorney-in-fact. The health care agent is the person you name to make your medical decisions for you, and the attorney-in-fact is the person you name to make your financial and legal decisions for you.

Both of these positions are only effective during your lifetime. Once you die, these positions no longer have any authority. An attorney-in-fact should possess the same characteristics as the personal representative and trustee. A health care agent should be a person who might be with you when medical decisions are being made and who also is willing to implement your end-of-life decisions. For example, if you choose to not take life support, but your health care agent won’t step on a cricket because it is the taking of a life, then perhaps you’ve got the wrong person. Furthermore, if your health care agent lives in Dallas and only visits you in Fargo twice a year, you might want someone who lives a little closer.

Can one person fulfill multiple fiduciary roles?

The short answer is “yes!”. A person can fulfill multiple fiduciary roles. I don’t really advise against someone holding any combination of roles, including all of the roles. However, there is one exception. I don’t think it is a great idea to have the same person hold the role of a trustee and a guardian. If a guardian is appointed, he or she will be the one requesting distributions from the trust set up for the minor children to pay for their expenses.

Frequently, these payments are made directly to the guardian to offset the additional costs of the new family members for groceries, gas, trips, sports fees, etc… The trustee has the power to decide when to make a distribution or when not to make a distribution.

If the person asking and receiving and the person giving are the same, it is fairly easy to misappropriate trust funds. All it takes is the fact that there are no checks and balances to lend itself to an allegation of impropriety. And with a guardian and a ward (the child of the decedent), that allegation or even perception could ruin the relationship forever.

In the end, choosing someone to make decisions for you or on your behalf is never easy. This is why we all tend to think we make our own best decisions, not someone else. However, when the time comes, you are going to need a fiduciary to take control. Hopefully, it’s not to raise your children; but if it is, then at least you’ve spent some time to make your best decision.

F. John Williams III is an attorney with Fredrikson & Byron in Fargo. He provides sophisticated estate planning, business succession, and trust and probate administration solutions for business owners, farmers, ranchers, executives and professionals. He can be reached at [email protected].

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Brady Drake is the editor of Fargo INC!