Most of our new clients come to their Initial Meeting with the idea that they should name one of their children as the Executor of the Estate (the “financial fiduciary”). Worse yet, some new clients ask us to set up “a committee of our children” to act as the executor.
For most families, I will usually give some strong advice, about why it is generally not a good idea to name a child as a financial fiduciary.
Many people feel that it is “traditional” or that it is “an honor” to name a child as an Executor. But does the child really feel that way? Have you asked your child if he or she would really wish to take a temporarily leave from their spouse, their job, their children and their lives, in order to manage your affairs if you were disabled or deceased? For most estates, being an executor is VERY busy work. There are many financial, tax, legal, and investing details to attend to, and this sometimes complex and time-consuming work must usually be done without notice, and at a time of family crisis.
I’ve heard other clients tell me that they wanted to appoint all of their children as “co-executors” so that they would not appear to be favoring one of their children. This is rarely a good idea. First of all, it makes a hard job even harder; if everyone involved in the administration of the estate must send multiple copies of everything to multiple fiduciaries, or must wait for several children to sign the same document, or simply to keep all of the fiduciaries and beneficiaries “fully informed.” But also, why should anyone set-up an estate plan, so that any disagreement (even a small one) can turn into a potential serious legal dispute, because one of the executors might not agree about something?
Even in the best families, the emotional stress of administering a parent’s estate can cause frustration, suspicion and misunderstanding to grow unnecessarily between siblings. Why do people believe that it is a “honor” for a loving child to be placed in this position?
For all estates that are valued at more than $5 million, and for all estates where there might already be concern for “family politics” involving the children and/or their spouses, I routinely and strongly advise the client to consider naming a trusted, licensed professional adviser (such as a CPA or a CFP) as the financial fiduciary.
Except in very small estates, naming a child to act as a financial fiduciary usually does not save money. Most children who are fiduciaries will still hire a CPA, CFP and/or an attorney to prepare tax returns and accounting, and to complete the more technical requirements of the estate administration. A child who does not have a financial background might actually be more expensive in the long run, because the child will need more legal and accounting advice than most professional fiduciaries would need to receive, and because non-professional fiduciaries are much more likely to make mistakes during the course of the estate administration.
The estate plan should also provide that after both parents are gone, the beneficiaries (the children) can remove and replace the trustee. Under differing circumstances, the clients might wish to require that the children unanimously agree to a change of trustee, or that the majority vote of the children (or simply the vote of the “primary beneficiary”) is all that is required.
Most of my clients chose to name licensed professionals as their fiduciaries, with their children acting as overseers. For interested clients, we’re always pleased to provide multiple referrals to those professional fiduciaries that would most likely be a good match for a particular client.