Thursday, December 20, 2012

Selecting People to Administer your Estate Plan

An important part of developing an estate plan is selecting people to help administer the plan at your death or incapacity. This includes Personal Representatives to administer the Will under Michigan probate, Guardians to see to the physical well-being of your minor children, and Successor Trustees to administer the assets of the Living Trust for the benefit of your beneficiaries. Sometimes selecting people to serve in these capacities is not an easy task because there may not be family members or friends you trust enough to select for those positions. Alternately, there may also be a concern that you will offend some people by not naming them to certain positions. This should not deter you from making decisions that you think are the best ones, because, after all, you will not be around to listen to their complaints.
Guardians are obviously important because you want to select people whose child-rearing philosophies are similar to your own. That may actually be a sibling and his or her spouse, but it may actually be another relative or a close friend. Another common concern when selecting guardians is geographic location. While a family member who lives in another state may be more than capable of caring for your children is important to consider whether such a drastic move is good for your children. The thing to focus on is "what is the best for my children?"
Nearly as important as the Guardian, the Successor Trustee administers trusts, pursuant to their terms, when the initial trustee (who is usually the trust maker) becomes incapacitated or dies. Naming a successor trustee is not a decision made lightly. It is possible to name a family member, a friend or colleague, a corporate trustee, or a combination of them as trustee or co-trustees. Each of these alternatives has positive and negative aspects.
Family Member
Pro: They have family experience with the beneficiaries, are empathetic, and are personally involved.
Con: They are probably unskilled in business, there is no record of accomplishment in maintaining or growing assets, or they can become too emotionally involved.
Friends or Colleagues
Pro: They likely have a personal knowledge about the beneficiary's, and are trained professionals or have good business sense
Con: They may not have enough time to do a good job, may themselves pass away, or may have a conflict of interest when it comes to a business asset of the trust.
Professional or Corporate Trustee
Pro: Corporate trustees have the benefit of being professional, experienced, and objective, regulated and will not die.
Con: Corporate trustees are dispassionate, possibly ignorant of family dynamics, may be too conservative, and may have a high turnover of corporate trust officers.
Some clients use a team approach, considering that "two heads may be better than one,” or that they want a combination of professional and personal co-trustees. Unfortunately this tactic may only give the illusion of safety because it creates a trust that may be clumsy to administer.
What ultimately is important is selecting the person or persons you feel will be able to make good decisions. It is not necessary that they have significant expertise or experience with administration and investments, as long as they are capable of retaining qualified people to assist them. You want someone who has a similar philosophy and values as yourself, because they will be administering the trust for your loved ones.
I often use the story of how I selected my own trustee when my children were small. I have two brothers who I was considering as successor trustee. I asked myself what my brothers would say if one of my children came to the successor trustee and asked for a Porsche to drive down to Wayne State University for college classes. One of my brothers would have said "sure.” The other brother would have said, "You do need a car, but your dad would have bought you an Escort.” I of course chose the brother who took into consideration what I would have done in that situation.
Once you have selected successor trustees, the decision regarding whom to name as a personal representative under the will becomes much easier. Since the successor trustee and the personal representative will work closely with one another during the initial probate process many clients opt to name the same individual in both positions so there is no conflict.
Finally we do not want to forget that during the planning process you will also name individuals to make decisions on your behalf should you become incapacitated. You want to consider carefully whom you are naming under your Patient Advocate Designation to make medical decisions in the event you are incapacitated and whom you are naming under your Durable Power of Attorney to make legal decisions in the event you are incapacitated.  Again, it is important that those people you name have an understanding of your philosophy and values when it comes to making medical decisions, especially those "pull the plug decisions". You want to make sure that the person or persons you name will be able to make those decisions when the time comes, yet will not make them too quickly.
As you can see, naming people to administer your documents for your benefit and the benefit of your beneficiaries is as important as determining where you want your assets to go. If in the estate planning process, you find yourself unable to decide whom to name to these important positions your estate planning professional should be able to assist you in making these important decisions.

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