Selection of Fiduciaries
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Appointees to the office of personal representative and trustee
can come from a number of distinct categories, among them being
(a) spouses, (b) children, (c) other family members, (d) business
associates or friends, (e) lawyers, (f) banks or trust
companies, and/or (g) investment companies. There might well be
other possibilities, but this list reflects the choices which
are normally available.
As if that number of choices were not enough to deal with, there
are also a substantial number of criteria which bear directly
upon the question of suitability for such an assignment. Those
criteria include (a) skill and experience, (b) dependability,
(c) availability for the assignment and sufficient longevity to
carry it to completion, (d) ethical awareness and standards,
(e) acceptability to the beneficiaries, (f) financial
responsibility, (g) susceptibility to conflict problems,
(h) degree of independent judgment, (i) fees, commissions
or other charges made for the services rendered, and/or (j)
any circumstances which might serve as clear counter-indications
to such an appointment.
Admittedly, reasonable people can differ with the conclusions
that others draw on these subjective criteria. In an attempt
to present a useful overview, there is a chart appended which
sets out in tabular form the generally perceived "pros and
cons" of each category. The following discussion will
elaborate somewhat on the cryptic entries on that chart:
1. Skill and Experience.
Family members generally are not equipped, either by skill
or experience, to serve effectively unless they are assisted
by competent advisors. This is not a disabling factor, so
long as they have the judgment to procure and act upon
qualified advice.
Business associates, depending on their background, education
and experience, may have widely varying qualifications. Lawyers
generally range from moderately to very highly qualified,
depending on a number of factors including practice emphasis,
prior training, and experience.
Banks or trust companies have generally quite high skill and
experience levels.
2. Dependability. Dependability
varies widely among family members and business associates, from
downright unacceptable to the very highest standard. The
dependability of lawyers is generally moderate to high, and
of banks and trust companies quite high indeed.
3. Availability and Longevity.
The availability of an appointee to serve in a future appointment,
and that appointee's longevity to carry out the assignment, vary
widely. A primary determinant, obviously, is the age and
health of the individual. On this score, clearly, the
institutional providers rank highest, younger individuals next
and older individuals lowest.
4. Ethical Matters. The
question of ethics is really two-fold, (a) whether the
provider recognizes the existence of ethical problems, and (b)
if so, whether the standards employed in dealing with those
ethical questions are high.
Non-professionals, needless to say, vary widely in their
acceptability under this criteria, principally because they are
not equally adept at identifying the ethical problems, rather
than because they are willfully unethical in their conduct.
5. Acceptability. Acceptability
to the beneficiaries is both a widely varying and particularly
subjective criterion. The spouse is usually acceptable because
of family considerations; most family members are willing to give
the surviving spouse at least the benefit of the doubt.
Appointment of other family members, business associates or a
lawyer, varies widely in terms of acceptability. Appointment of
one of a group of siblings can occasionally give rise to
jealousies and other feelings which can be harmful to the family
and to the administrative process, and should be approached with
particular caution.
Banks and trust companies, curiously, seem to have a low
acceptability level in the context of modest size estates,
estates holding assets other than marketable securities, and
very large estates. The region of greatest acceptability of
banks and trust companies seems to be among the ranks of the
moderately wealthy.
6. Financial Responsibility.
Financial responsibility, that is, the ability of the fiduciary
to make good to the beneficiaries any loss or damage they sustain
by reason of the fiduciary's errors or omissions, varies
considerably.
Children's responsibility is often modest owing to their age,
lawyers generally have substantial responsibility, if only because
of the existence of professional liability insurance, and banks and
trust companies of course have very substantial means and
responsibility.
7. Conflicts of Interest.
Conflict problems, that is, the problems arising where the
fiduciary may have personal interests (economic or otherwise)
which tend to interfere with the fair and even-handed
administration of the estate or trust, are not at all infrequent.
Typically, fiduciaries who are also beneficiaries have the
greatest difficulty in this area, and professional fiduciaries
the least difficulty. Business associates may also have
significant impediments in this area, and you should be
particularly alert for this possibility.
8. Judgment. Independent
judgment, that is, the ability to look at all of the facts
and circumstances and draw appropriate conclusions, may be
the hardest quality of all to measure in a prospective appointee.
Close family members, because of their inexperience and their
economic interest in the estate, often rate low in this regard.
Professional fiduciaries generally rate high, both because of
experience in identifying and dealing with issues and in
dealing with them, and because of a lack of personal involvement.
9. Cost of Service. The
entire question of cost, that is the fees and/or commissions
chargeable by the person or institution selected to perform the
service, varies considerably. In most instances a surviving
spouse will make no charge and a child or other family member
might well do likewise.
Professionals, needless to say, must charge for their skills
and efforts. Business associates, even though not professional
fiduciaries, also will likely charge for their services, but
may have valuable contributions to make in certain types of
estates and trusts.
Perhaps it might be well also to mention some issues which are
not relevant in the selection process, or are only marginally so.
Except in the case where an estate or trust is operating a
going business, or has tangible investments which require
frequent inspection, the geographic location of the fiduciary
is generally not a problem. Rapid communication by telephone,
fax machine, e-mail, overnight courier service, and in the
unusual instance, video taping, can allow persons in Seattle
and Savannah to work closely together. Needless to say, the
law of the situs of the estate or trust has to be observed,
and generally speaking, counsel at that location employed for
advisory purposes, but that rarely presents a problem.
Some states impose restrictions or conditions upon the rights
of non-resident individuals and/or banks to act as fiduciaries.
Maryland simply requires that a non-resident personal representative
must appoint a "resident agent", and as to corporations,
that they may act as fiduciaries only in single or isolated
transactions. Frequent transactions involving a non-resident
corporate fiduciary require its qualification to do business
in Maryland.
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Compensation of Fiduciaries
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In Maryland, the compensation of personal representatives and
trustees is controlled by statute. The compensation allowed to
personal representatives is governed by Section 7-601 of the Estates
and Trusts Article of the Code of Public General Laws of Maryland,
which provides that a personal representative is entitled to
"reasonable compensation" for its services.
Commissions are set by the Orphan's Court in whatever amount it
considers appropriate, based upon a petition filed by the
personal representative which recites in reasonable detail the work
performed and benefits conferred, subject to a ceiling of (a)
9% of the first $20,000 of estate subject to administration,
plus (b) 3.6% of the amount of the estate in excess of $20,000.
Under the provisions of Section 7-602, the compensation of the
attorney for the estate is also based upon a test of reasonableness,
and a requirement that the services rendered be detailed in a
suitable petition.
Finally, there is also a requirement that the commissions and
counsel fees, taken together, may not exceed, in the aggregate,
what would be a fair and reasonable total charge for the
administration of the estate.
The compensation allowable to trustees is also generally fixed
by statute. Section 14-103 of the Estates and Trusts Article
prescribes a schedule of commission rates, calculable both on
principal and income, subject to increase or decrease, for
cause, by a court having jurisdiction over the trust.
Additionally, banks, trust companies, or members of the Maryland
bar may charge increased commission rates if those rates are
reflected in a schedule filed with the appropriate governmental
agency and notice of which is given to the beneficiaries.
Commissions calculated at the statutory rates on a trust having
a principal value of $500,000 would be approximately $3,000 per
year. Trustees are expected to absorb and pay for, out of their
commissions, all of the ordinary and routine expenses of the
trust administration, such as safekeeping of assets, routine
accountings, making and executing all administrative and
investment decisions, etc. They would normally be allowed,
however, to charge any extraordinary expenses to the trust.
In addition, trustees are allowed to receive certain extra
commissions on the sale of real property held by a trust, and
in connection with any distributions of principal from the trust.
Unlike the practice in some other jurisdictions, co-fiduciaries
in Maryland must generally divide the allowable commissions
between themselves rather than being entitled to receive
multiple commissions.
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Law Offices of Thomas J. Keating IV
Centreville, Maryland, USA
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