In October, Mark Caldwell was asked to present at the 33rd Annual Estate Planning & Probate Drafting conference in Houston for the State Bar of Texas. Mark and Sarah V. Toraason, worked diligently to prepare for the conference. Below is a snippet of their co-authored paper for the conference and a link to the full paper is available for download below.
I. INTRODUCTION
Selecting a fiduciary is one of the most important decisions to make during the estate planning process. In fact, this decision “probably has the most frequent and dramatic impact on family harmony.”1 Many people are inherently predisposed to appoint a family member in these roles because they grossly underestimate the risk to family harmony and grossly overestimate the benefits of naming a family member as a fiduciary.2 The same tendency applies when naming co-fiduciaries. A client underestimates the risk of naming more than one fiduciary and grossly overestimates the benefits of appointing two or more people to this role.
This happens for a variety of reasons. Clients commonly desire to appoint more than one family member as a fiduciary to avoid feelings of jealously or resentment. When two people have different skills or talents, clients believe that by naming both people as co-fiduciaries, they are getting the best of both worlds. Similarly, many clients believe that naming co-fiduciaries imposes a “check and balance” system onto the administration of their trust, estate, or property. Appointing co-fiduciaries, however, often creates more problems than it solves. Appointing co-fiduciaries, particularly, when a parent requires their children to do a job as a group, has been referred to as “[t]he number one opportunity for an estate plan to go wrong.”3 As one practitioner notes, naming children as co-fiduciaries is like putting them in a rowboat:
Imagine loading the children into a rowboat on a big lake and requiring them to agree on one destination when their rowboat can go in only one direction, no matter how many passengers it holds . . . It is very difficult for children with different financial profiles, different values, or different residential states to be on the same track at all times with each other, not to mention their respective spouses. Plans that require children to agree among themselves when their parents are both gone are simply fraught with danger.4
Naming co-fiduciaries carries at least three downsides.
First, serving as a co-fiduciary is a complex job which is difficult to navigate. When someone is named as a trustee, executor or agent, he or she is becoming a fiduciary and taking on numerous and significant legal duties. Rarely does a fiduciary fully understand all of his or her fiduciary duties. But when someone becomes a co-fiduciary, he or she is taking on all the normal fiduciary duties, plus additional duties — thus, they are a “fiduciary plus.” It is difficult for each co-fiduciary to understand his or her duties and/or potential liability. The governing instruments, statutes, and common law applicable to such relationships — particularly, with respect to a co-fiduciary’s duties and liabilities — vary greatly in their development and specificity. Determining a co-fiduciary’s particular duty or liability can be extremely difficult even for the most seasoned lawyer, let alone a lay person. Rarely are estate planning clients properly educated on the duties and liabilities of co-fiduciaries while contemplating whether to appoint more than one fiduciary.
Second, each co-fiduciary should ideally work together; however, each co-fiduciary may attempt to “row the boat” at different speeds and in a different direction — or take the oar out of the other co-fiduciary’s hand altogether. For example, with respect to decision-making, co-trustees are generally required to act unanimously, unlike co-executors/administrators and co-agents, who may generally act independently. If anything, appointing co-fiduciaries lays the groundwork for a disordered, inconsistent and inefficient trust, estate, or property administration. Appointing co-fiduciaries also increases the risks of deadlock. Rarely do co-fiduciaries engage in the level of communication and cooperation necessary to administer an estate in an efficient and coordinated manner. Securing the acceptance of an alternative co-fiduciary to fill a vacancy can be challenging.
Third, adding more than fiduciary typically increases the cost of administration. Initially, co-fiduciaries must coordinate their activities amongst themselves, which usually means it takes longer to make decisions and to act. There is also inherent duplication. Staying informed often requires them to keep and maintain independent records. Due to the potential for conflicts and disagreements among co-fiduciaries, each co-fiduciary may need his or her own legal counsel, adding more costs. Resolving disagreements/deadlocks and/or remedying the conduct of a rogue co-fiduciary usually requires court action, further increasing costs.
For these reasons, many estate planners strongly recommend against naming co-fiduciaries and many institutional/professional fiduciaries will not serve n such a role.
This article attempts to arm the estate planner with the information necessary to help a client who is considering appointing co-fiduciaries to make an informed decision. This article focuses of the most common types of co-fiduciaries: co-trustees, co-executors/administrators, and co-agents. Any attempt to properly identify the advantages and disadvantages of naming co-fiduciaries must start with understanding the relevant law applicable to each role. First, we identify and discuss the three main sources of authority which govern co-fiduciary’s duties, powers, and liabilities: the governing instrument, the applicable statutes, and the common law. Next, we discuss when each respective co-fiduciary’s duties begin and identify the basic fiduciary duties for each type of fiduciary and the additional duties applicable to a co-fiduciary for that type of role. We then outline the basic rules governing decision making for each type of co-fiduciary as well as the potential liability each particular co-fiduciary faces for acts of other co-fiduciary. After laying out the default rules for each co-fiduciary, we identify the best drafting practices when appointing co-fiduciaries, particularly how to address particular issues which are a frequent source of tension and dispute. Finally, we conclude our discussion by identifying the advantages and disadvantages of appointing co-fiduciaries.
Drafting for Multiple Executors, Trustees, and Agents
Mark R. Caldwell routinely represents executors, guardians, and beneficiaries in complex estate, trust, and guardianship litigation. He has also represented fiduciaries in all phases of estate, trust, and guardianship administration. Mark is passionate about holding those who exploit others accountable and defending those who have been wrongfully accused of doing so. Mark enjoys the investigatory aspects of estate and trust litigation, including reviewing and analyzing medical, financial, and suspicious property records and transactions. Mark is committed to developing and maintaining strong, personal relationships with his clients. He endeavors to offer smart, pragmatic and cost-effective legal advice. Mark believes that the strongest winning position is one that is simple, direct, and understandable.
An experienced litigation attorney, Sarah Toraason has ten years’ experience representing clients in complex commercial disputes involving securities, contract, business tort, insurance coverage, ERISA, and intellectual property claims in state and federal courts as well as arbitration. Sarah now applies her extensive business litigation background to representing clients in estate, trust, and guardianship disputes. She strives to be a strong advocate for her clients and approaches every matter with the goal of producing a successful and efficient resolution of their case.
Sarah graduated from the University of Richmond with a B.A. in Music and Leadership Studies and received her M.B.A. and M.A. from the University of Cincinnati. She earned her J.D. from William & Mary School of Law. After graduating from law school, Sarah served as a law clerk to the Honorable Henry Coke Morgan, Jr., of the United States District Court for the Eastern District of Virginia. She then clerked for the Honorable Fortunato P. Benavides of the United States Court of Appeals for the Fifth Circuit in Austin, Texas.
