The Role of Fiduciary in Your Estate
Author: Julie Garber, the balance
A fiduciary is an entity with the power and legal obligation to act on behalf of another in situations that require trust, honesty, and loyalty. They must take the utmost care to act in the best interests of the party who has delegated this responsibility.
Fiduciaries can serve in any number of roles in your estate, both before and after your death. Fiduciaries can be accountants, attorneys, bankers, business advisers, financial advisers, mortgage brokers and real estate agents.
Here are some of the most common roles fiduciaries take on when granted this authority.
Executor or Trustee
This fiduciary is responsible for settling your estate following the directions included in your last will and testament. If you die without leaving a will, the court will appoint someone to this position. You can appoint one or more individuals or an institution, such as a bank or trust company.
Executors are charged with gathering your assets and settling your final debts and tax obligations from estate funds, then distributing the remainder of your estate to your beneficiaries. If you don’t have a will, they are responsible for ensuring your assets go to your heirs according to state law. Their fiduciary duty is to your beneficiaries as well as to your expressed final wishes.
Personal fiduciaries, such as the executor of your estate, can be held financially and civilly liable for taking actions that aren’t in line with your best interests or intentions.
A trustee is responsible for managing assets that you’ve placed in a living trust. They must act per the directions you’ve included in the trust agreement, just as an executor must act following the terms of your will. This can be one or more individuals or an institution, such as a bank or trust company.
Many people act as their own trustees when they create revocable living trusts, appointing a successor trustee to take over later should they become incapacitated or at the time of their deaths. This is not an option with an irrevocable living trust. You must appoint someone else to act as a trustee from the beginning.
In either case, the trustee also has a fiduciary responsibility to your beneficiaries after your death. The role of fiduciary does not end when you pass. It shifts to those who will benefit from your estate, and fiduciaries must put the interests of your beneficiaries first in conjunction with your final wishes.
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Health Care Agent
This fiduciary is responsible for making medical decisions on your behalf following directions you’ve set out in an advance medical directive, also sometimes called a medical power of attorney or durable power of attorney for health care.
A health care agent can’t be an institution or a health care provider who is currently treating you.
A health care agent must uphold your written wishes regarding your health care at a time when you’re unable to speak them yourself.
Attorney or Agent
Lawyers in all areas of practice are considered fiduciaries. Their fiduciary responsibilities and code of ethics are among the most ironclad and are handed down by the U.S. Supreme Court. To some extent, they’re even covered by the U.S. Constitution. What you say to your lawyer stays with your lawyer in most cases.
Unlike an executor or a trustee, an attorney’s fiduciary obligation is to you, not your beneficiaries. The attorney’s role is to protect you and your estate and to ensure that they follow your wishes in the documents that provide for them, such as your will.
Attorney-in-Fact
An attorney-in-fact, sometimes called your agent, is responsible for managing assets that are titled in your name. They act following directions that you’ve included in a power of attorney. It can be one or more individuals, institutions or both.
Pre-Need Guardian
This individual is responsible for taking care of you and your property if the court determines that you’re mentally incompetent and in need of someone else to manage your affairs. This would be the case if you did not have a revocable living trust—a successor trustee would need to step in for you.
You can designate this fiduciary in a free-standing legal document called an advance medical directive or in a medical or financial power of attorney.
Guardian for Minor Children
This fiduciary is responsible for taking care of your children if you die while they’re still minors. You can designate this individual in your last will and testament.
In some cases, you might want to name the same person to serve as fiduciary in all your estate planning documents. For example, if you’re married, you might name your spouse in all capacities. Otherwise, you might decide to name different people or institutions to serve in various capacities. The Role of a Fiduciary in Your Estate
Financial Advisor The Role of a Fiduciary in Your Estate
Planning a particularly problematic estate might require a financial firm, bank or brokerage firm’s advisory assistance. These fiduciaries are not limited to individuals. These business entities also have fiduciary responsibilities that extend to all their employees, partners, corporate officers, and other personnel.
Brokers themselves, however, are not usually held to the fiduciary highest standard of care. They follow another code, a “suitability standard” that is far more relaxed and generally means “know your customer.”
You might entrust your assets to the care of these individuals during your lifetime but the bulk of fiduciary responsibility shifts to your executor or successor trustee at your death.
This can be a tightrope for brokers, so they’re generally held to a legal obligation to research the advice they’re giving you. Brokers must act in good faith to serve your best interests based on their knowledge of your financial situation.
Fiduciary Law
A fiduciary duty is an obligation to act in another party’s best interest. Most states have legislation that governs the behavior of fiduciaries. Betrayal of this trust can lead to litigation or other legal actions against the fiduciary. Lawyers can be disbarred, and personal fiduciaries can be held financially and civilly liable for taking steps that aren’t in line with your best interests or intentions.
Alternate Fiduciaries
It’s essential that you choose one or more alternate fiduciaries if your first choice can’t or doesn’t want to serve, and you should always check with the person you’re thinking of appointing, so you have a clear understanding of her feelings on the matter.
A court will select someone else for you if any of your fiduciaries decide not to serve when they’re needed, and you’re incapable of making the decision yourself at that time.
Did you enjoy reading, The Role of Fiduciary in Your Estate? Try reading one of our past articles, What to Look for in a Fiduciary
Thank you for reading The Role of Fiduciary in Your Estate, please visit Exclusive Estate Administration today to find a CA licensed professional fiduciary who can assist with your estate plan.
