One of the most important decisions you make in the estate-planning process is the selection of fiduciaries who will represent you when you no longer can act for yourself. Though many settlors initially consider appointing a family member or close personal friend, the benefits of instead nominating a professional fiduciary include experience in estate administration, specialized expertise, consistency, objectivity and a well-established back office to perform common administrative tasks. Many relatives or friends already have demands on them (jobs, family and other commitments); a professional fiduciary’s first and primary focus is on managing the estate’s affairs.
Your successor agent is required to identify and manage assets and liabilities, communicate with and timely account to beneficiaries, plan for and comply with tax laws, all in accordance with the terms of the governing documents (trust, will, power of attorney, health care directive). Professional fiduciaries are well equipped to stay on top of the work and demands of the role, help alleviate legal risks (and fees), may prevent relationship breakdown and family conflicts, and reduce the burden on a family member or friend. In addition to these benefits, many settlors simply lack personal relationships with other individuals whom they unequivocally trust with the complexity or intimacy this work requires.
On accepting the role, your agent assumes fiduciary duties and the potential for liability to the trust and/or estate and its beneficiaries. A trustee must rely on the trust agreement, as well as state law, to understand and carry the full burden of the undertaking. Provisions governing the trustee’s role are often found in boilerplate document language and tend to be tailored toward individual trustees. The drafting attorney should be mindful of the differences between individual trustees and professional fiduciaries with respect to their capabilities and limitations and how those differences will likely play out in real world scenarios.
Certain provisions may appear unproblematic, but for practical purposes pose a challenge for any agent, especially a professional fiduciary, to monitor and enforce. These provisions could be integral to the settlor’s intent and therefore exemplify the need for the drafter to consider the realistic outcome of boilerplate (and other) language. It is helpful for the drafter to collaborate with the professional fiduciary during the drafting stage before the document finals are signed.
A significant advantage in nominating a professional fiduciary as successor trustee is that many fiduciaries have trust professionals who welcome the opportunity to provide feedback and who can share applied professional knowledge in this niche area. Professional fiduciaries devote significant resources to client services and often have seasoned trusts and estates consultants on staff to partner with the drafting attorney. In this way, it is possible to mitigate potential risk and ambiguities in the agreement in advance. A professional fiduciary might be unable to serve because certain document provisions may run afoul of its internal policies, requiring modification to align with those policies. The partnership between the drafting attorney and the professional fiduciary at the onset of trust creation is therefore crucial to ensure a streamlined and cost-effective administration.
Santa Barbara Fiduciary initially conducts independent reviews of our clients’ plans to identify any problematic language, potential restrictions or ambiguous (or altogether missing) terms. Remember, when your successor trustee takes over, you won’t be able to offer clarification and it will be left up to your agent to determine whether or not to accept the appointment, or possibly the courts may need to decipher your intent. Combing through your plan now eliminates these potential concerns.
In addition to emphasizing the importance of the collaborative process between the client, drafting attorney, and a professional fiduciary, the purpose of this article is to draw attention matters in estate planning that are important to everyone, but particularly important to individuals appointing a licensed professional fiduciary, given the higher standards that professional fiduciaries are held to and, at least this office’s, desire to ensure that your affairs are managed smoothly and fully in accordance with your wishes.
Three common areas that warrant careful review and analysis, particularly when using the services of a professional fiduciary include (1) the use of clear and concise language, (2) the inclusion of appropriate provisions and powers, and (3) client instructions.
Some professional fiduciaries offer comments and rely on the attorney’s own personal drafting style to implement the requested changes, while others strongly suggest the use of certain form language prior to accepting the management of a trust.
Clear & Concise Language
There is no single solution for estate plans, no “one-size-fits-all.” To be effective, your plan should be customized to meet your unique needs, but that doesn’t mean your attorney won’t still use some boilerplate language throughout, and that’s fine most of the time. The difficulty arises when the language in your documents isn’t clear about – or is in conflict with – your desired outcome. And yes, this happens more than you might think.
Overall, the language of the estate plan, whether it be the trust, will, durable power of attorney for finances (DPOA), and/or advance health care directive (AHCD), should be concise, clear and support the professional fiduciary’s ability to effectively serve. Professional fiduciaries are held to the highest standard of the law when serving, making it ever more important that trust language steer clear of ambiguous, contradictory and antagonistic language so as to limit the risk of litigation, liability and minimize the period of administration.
Estate plan language should not pose significant restrictions to or difficulties with the fiduciary’s ability to effectively serve. If trust terms are particularly unfavorable to a professional trustee, and do not provide sufficient protections to such trustee, they stand to be detrimental to both the trustee and the settlor’s intent. Confounding language can make the trust administration exceedingly long and encumbered, further exposing the trustee to liability and everyone (notably the beneficiaries) to frustration. The trustee is charged with a high and burdensome task: maintaining a fiduciary’s activity. Problematic trust language adds unnecessarily to the existing burden.
Keeping your plan up-to-date is key to ensuring your affairs are managed smoothly and in accordance with your wishes. Estate plans need to be updated after major life events, when your goals shift, or when public policy changes. Our office recommends reviewing your plan with a professional at least every three to five years. It’s safe to say that your plan’s success, and maybe even whether or not your agent decides to accept the appointment when the time comes, hinges heavily on the fiduciary’s ability to fulfill their role when the time comes.
Clear, concise documents that demonstrate a conscious effort to use direct, precise language and that are understandable by both the lay man and professional, serve everyone’s best interests.
Fiduciary Provisions & Powers
From a fiduciary perspective, basic drafting provisions, for a trust, will, DPOA, and AHCD should include those covering, reasonable compensation, resignation protocol, successor protocol and granting power to name a successor, reports and accounts, and HIPAA.
Our preferred compensation provision includes reference ‘to reasonable compensation for services rendered, payable without court order.’ Although compensation may be governed by probate code provisions, reciting clearly and directly in the document it pertains to supports transparency and terms for all involved.
Basic fiduciary powers should include access to digital accounts and assets held in trust or pursuant to a will, DPOA powers, language establishing a Special Needs Trust if circumstances require, and the ability to make distributions in sole and absolute discretion where appropriate.
It is often helpful to include a no-contest clause in a trust and will, in order to prevent contests and drawn out litigation by beneficiaries who may be dissatisfied with their bequests. Tangible personal property should be handled by trust language and can be made flexible by reference to an attached list or letter of instruction to the successor trustee, which the settlor has the freedom to amend from time to time until deceased or lacking capacity.
Wills should include the power to administer the estate under California Independent Administration of Estates Act in order to limit court supervision (and related expenses, time delays and frustration) of acts taken by the appointed executor.
It is usual for a Will and/or a Trust to waive the necessity for the agent to obtain a bond, the expense of which is borne by the estate. Professional fiduciaries must carry their own bond and insurance, which often is not the case for family members or close friends.
We generally do not recommend “springing” durable powers of attorneys, i.e., those becoming effective only on incapacity. The difficulty with springing powers of attorney is the inherent unwillingness of most physicians (sometimes doubled by the need for two) to execute the requisite written declarations of incapacity that cause the DPOA to become effective, in light of medical malpractice claims for doing so. Therefore, court action could be needed to empower an agent to act. Settlors may want to consider instead executing a general durable power of attorney, effective immediately upon execution. While it becomes immediately effective, it need not be disclosed to the named agent (also referred to as an “attorney-in-fact”) until it becomes necessary to use it.
You should always make sure that your Advance Health Care Directive includes up-to-date HIPAA language for your health care proxy. This ensures that the person authorized to make your medical decisions has access to your medical information and records. HIPAA (short for Health Insurance Portability and Accountability Act) was designed to protect the patient’s privacy but in doing so, it can interfere with your intentions to extend this authority to another person. Including this language in your directives eliminates this obstacle and enables your agent to act with clear understanding of your medical circumstances.
Limiting fiduciary liability is also important, particularly to professionals. Professional trustees should not be personally liable for their good faith efforts in administering the trust estate. Providing a 90 or 180-day limit on accounting can also enhance efforts to expedite distributions and serve beneficiaries, which in turn serves the fiduciary who makes the account.
Estate plan language should be mutual aligned with the goals of the settlor and fiduciary to create clear, effective documents that reduce the potential for misunderstanding along with the trust’s exposure to liability/ambiguities/interpretation.
Client Instructions
There should be supplemental instructions in your estate plan if you have pets and/or regulated items such as firearms, ivory, etc. Your estate plan may allow you to prepare a Personal Property Memorandum.
In order to serve quickly and efficiently when called upon, providing you successor fiduciary with information for all individuals listed in the trust, including their most recent address, phone number, email, approximate age or date of birth and whether they are aware of their designation/naming in your trust is recommended.
Provide the fiduciary with the information needed, and as you would like it stated on your death certificate, a statement of your desired wishes with regard to any memorial/service and/or obituary, a list of friends or relatives to contact (or not) at various stages (for example if terminal or after passing), and who is their next of kin (whether or not they are referenced in the estate plan) is advisable and very helpful.
Estate planning documents are generally written using broad legal terms and concepts. Eventually, when your plan is implemented, there might be numerous interpretations of those terms. A letter of intent can help provide clarification with additional context regarding what you want these terms to mean. This can be an opportunity to document your thoughts, approach, and/or wishes, in your own words.
Other personal touches you may want to consider include an ethical will or heartfelt letters to beneficiaries. These informal documents can have a meaningful impact on those you leave behind, providing them—and future generations—the opportunity to learn from you and remember your stories after you are gone.
With careful and well thought out advanced planning, Santa Barbara Fiduciary puts an emphasis on identifying the people and circumstances that best contribute to your mental and emotional health. By setting forth in writing the people and circumstances that are most important to your physical, mental and emotional health, Santa Barbara Fiduciary can help to ensure you’re cared for in the manner you wish, at all stages of life.
Final Thoughts
Though certain boilerplate language may be cumbersome for a professional fiduciary to administer for practical purposes, collaboration among the parties during the drafting phase of the trust agreement can provide for a more streamlined trust on-boarding process and trust administration. When using a professional fiduciary, drafting attorneys should: (1) re-evaluate certain boilerplate language tailored for individual trustees; (2) confirm that a professional fiduciary’s suggested or form language doesn’t conflict with other provisions of the trust agreement; (3) reconsider liability issues for trustees; and (4) discuss a professional fiduciary’s specific experience, capabilities, policies and procedures. This foresight will ensure the best result for all parties involved in the trust creation and administration process.
