PRACTICE TIPS By: Carolyn Levy Gilliam McDonald, Levy & Taylor, PLLC
BE WARY OF NAMING CO-FIDUCIARIES If you’re an attorney who practices in estate planning, I’m sure you’ve come across this issue in practice. Clients commonly struggle to nominate just one party to serve as an agent on a power of attorney or as an Executrix on a Last Will and Testament. Initially, the discussion always begins with the idea, “I don’t want to hurt my son or daughter’s feelings.” The solution, according to our clients, is to appoint co-fiduciaries to serve jointly and alleviate this problem. The plan is that the siblings, parents, family friends, will all serve happily ever after as co-fiduciaries. But what happens when these co-fiduciaries disagree or deadlock on a decision? Does one party have more power than the other? Do they play rock, paper, scissors, and decide amicably? The answer to these questions is, probably not. The appointment of co-fiduciaries is generally silent on any tie-breaking provisions in the event of a deadlock or disagreement. A simple disagreement under these arrangements can result in complex legal issues that must be resolved, often by unassociated attorneys and quite possibly by a judge. Why unassociated attorneys? Because the original attorney will likely be required to withdraw due to a conflict of interest once their co-clients are no longer aligned. Problems also arise when assumptions are made that one co-fiduciary is performing tasks under their authority, which may not be the case in reality. Additionally, without very clear guidance and communication amongst the co-appointees, tasks and other requirements may be missed under the assumption from both parties that the other is taking care of the responsibilities. Fiduciaries may be granted a vast amount of power and decision-making ability. As with all business decisions, there’s more than one avenue to achieve success. Fiduciaries may approach the administration of their responsibilities differently. Decisions may be mixed among parties, and none of those decisions would necessarily rise to a level indicating breach of a duty owed to the principal. Furthermore, many financial institutions are now refusing to name co-fiduciaries on an account. On the other side of the argument, there are also valid reasons to appoint two fiduciaries. The siblings can divide and conquer the difficult and normally time consuming affairs of the decedent or principal. Additionally, an extra set of eyes may be beneficial, especially if a fiduciary is serving their own interests or worse. Finally, an extra mind to explore options and help make the difficult decisions can’t hurt, right? First, please note that if a potential fiduciary has issues with making decisions, this might also be a good time to step back and reconsider vesting this individual with such authority. With regard to an extra set of eyes, you January 2022
can always require said fiduciary to provide an accounting to all the beneficiaries so there are many sets of eyes on the money, but without multiple signatures on a check. Accountings can help discover issues before they become disastrous and can stop the illusion of something disastrous when really all is being handled appropriately. For my clients who do not want to upset or cause friction among family members, I remind those clients that this is their good faith attempt to align their goals and create an easy path for their loved ones through legal documents while they have the capacity, means, and reasoning to do so. Often times, when issues between co-fiduciaries become heated and highly contested, the principal is no longer around or simply does not have the mental capacity to interject and calm the storm. So, now you ask, what about my clients who simply cannot make a decision regarding whom to choose as a fiduciary? Well, it depends. One option is to create a very clear tie breaker instruction, such as both co-fiduciaries are removed and a third party makes said contested decision or becomes the fiduciary upon the disagreement. Based on the specific circumstances, I have recommended on more than one occasion that my client may benefit from using a corporate fiduciary. Simply stated, some situations are just better suited to be managed by a corporate entity. In these situations, corporate fiduciaries may charge a fee for serving, but the speed in which these decisions are made and the actions that are taken on behalf of the entity served often cost less than the mistakes that could potentially be made by inexperienced fighting cofiduciaries. The added benefit is that there aren’t any arguments between family members at the Thanksgiving dinner table regarding legal issues (no promises on anything else). Whether you are appointing an individual or a corporate entity, sole fiduciaries simply have the ability to decide quickly, efficiently, and move on to the next issue. This arrangement does not allow for disputes as to whether decisions must be unanimous or who serves to break a tie in the event of deadlock. The best practice is to have only one fiduciary, be it a family member or a corporate fiduciary, though there may be some exceptions for certain situations. In these situations, as with any legal advice, it’s the attorney’s responsibility to explain to the client what could happen and elaborate with hypothetical scenarios. Be sure that when drafting the documents, clarify who has the ultimate authority, whether decisions must be unanimous, and be sure to build in tiebreaker provisions to navigate a deadlock if you can’t convince your client to be wary of co-fiduciaries.
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