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Finding A Fiduciary and Fiduciary Responsibilities
It is not always easy to decide on the best person to be your fiduciary. For example, what about a family with a family business? An adult child who has taken on a leadership role in the business may be too busy to serve as a fiduciary, even though she is the most dependable and qualified candidate. At the same time, the least dependable and unqualified candidate may be her younger brother. What happens when the younger brother is not appointed to serve? Will he feel relieved or regard being passed over as a personal affront?
For every scenario, even those that seem impossible to solve or improbable, there is a solution.
Making a Business Decision, Not a Personal One
The choice of a fiduciary is most successful when the decision is made based on facts and not emotions. The fiduciary needs to have the following qualities:
- Personal Integrity.
- Skill at financial matters.
- Organizational skills.
- Respect for your values and decisions.
- Ability to deal with family members and others who may resent their role.
- Need to be discreet and able to maintain privacy.
- Ability to recognize when they need outside professional help.
A fiduciary is legally obligated to act on behalf of the person who legally appointed the fiduciary, putting that person’s interests ahead of their own. An example is when the fiduciary is appointed as trustee over a trust. The fiduciary owes a duty of loyalty to the maker of the trust, to include while the fiduciary holds “legal title” over the trust assets.
A fiduciary also must disclose any conflicts of interest to any potentially impacted parties. The fiduciary is required to account for their actions and document all actions taken in their role. This is a serious responsibility and needs to be treated as such.
A Fiduciary for Incapacity vs. An Executor
The person who takes on the responsibilities of managing your finances while you are living may be known as a fiduciary, agent, or attorney in fact. The control given through a power of attorney document can be as narrow or as broad as you wish. In some cases, the fiduciary appointed under a power of attorney is given the ability to do everything from paying bills to voting your shares in a corporation. In others, the authority is limited to paying bills.
The executor is a person appointed in your last will and testament to carry out the directions in your last will after you die. The executor must be approved by the probate court when your last will is submitted for probate, before taking any actions on behalf of your estate. The probate court issues “letters testamentary” authorizing and empowering the executor to act. The executor has no power and takes no action while you are living.
A Fiduciary vs. A Trustee
A trustee is the person in charge of managing a trust, a separate legal entity created by an individual (the grantor) to take assets out of their estate for the benefit of the grantor or others. The trustee is a fiduciary to the trust, but not to the person who created the trust. The trustee is responsible for carrying out the directions in the trust.
Should a Younger Family Member be a Trustee?
Trusts often last for decades. While sometimes it is appropriate to appoint a spouse, sibling or the eldest adult child, a trust designed to last for several generations may need to have younger secondary trustees added. If the trust lives longer than the secondary trustee, it may make sense for a professional fiduciary, like a bank or trust company, to become the fiduciary.
Can a Fiduciary Be Penalized?
The fiduciary has access and control over money and property. If the document grants broad powers for the fiduciary, they must exercise their judgment. However, if they make decisions contrary to the intent of the last will or the trust, the fiduciary could be accused of fiduciary abuse. If the decisions are honest mistakes and transactions are correctly documented, it is less likely they will be sued for breach of fiduciary duty. However, fiduciaries need to exercise great care to protect themselves, as well as the interests of their clients.
Final Thoughts
Being asked to serve as someone’s fiduciary is both an honor and a major responsibility. Talk with the people you are considering to put in this role to ensure that they understand what is being asked of them. The more communication between all parties involved, the better.
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