Fiduciaries and Their Role in Your Estate

Significant trust and power is placed in the hands of a fiduciary

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A fiduciary is any person or institution that has the power to act on behalf of another in situations that require the utmost trust, honesty, and loyalty. But it's more than just the power to act. A fiduciary also has a legal obligation to act in a trustworthy and honest manner on behalf of those he represents. He must provide the "highest standard of care."

Fiduciaries can serve in any number of roles in your estate as well, both before and after your death.

They can include accountants, attorneys, bankers, business advisers, financial advisers, mortgage brokers, and real estate agents. They're hired to act in your best interests and they must set aside their own personal motivations in favor of your goals and wellbeing.

Your Personal Representative or Executor

This fiduciary is responsible for settling your estate in accordance with 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.

She's 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 or, if you don't have a will, to heirs set by state law. Her fiduciary responsibility is to your beneficiaries as well as to your expressed final wishes.

A Trustee or Successor Trustee

A trustee is responsible for managing assets that you've placed in a living trust. He must act in accordance with the directions you've included in the trust agreement, just as an executor must act in accordance with 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 trustee from the beginning.

In either case, the trustee also has a fiduciary responsibility to your beneficiaries after your death. His role as fiduciary does not end when you pass. It shifts to those who will benefit from your estate, and he must put their interests first in conjunction with your final wishes. 

A Guardian for Your Minor Children

This fiduciary is responsible for taking care of your children in the event that 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 different capacities.

A Health Care Agent or Surrogate

This fiduciary is responsible for making medical decisions on your behalf in accordance with directions you've set out in an advance medical directive, also sometimes called a medical power of attorney or a durable power of attorney for health care.

This fiduciary can't be an institution. He can't be a health care provider who is currently treating you. He's charged with upholding your written wishes regarding health care at a time when you're unable to speak them yourself. 

Your Attorney 

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 such as in the case of issues of attorney-client privilege. 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, his client, not your beneficiaries. His role is to protect you and your estate and to ensure that your wishes are followed in indisputable documents that provide for them, such as your will.

An Attorney-in-Fact

An attorney-in-fact, sometimes simply called your agent, is responsible for managing assets that are titled in your individual name. She acts in accordance with directions that you've included in a power of attorney. It can be one or more individuals and/or an institution, such as a bank or trust company.

A 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 so a successor trustee would 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.

Financial Advisor

Planning a particularly complex estate might require the advisory assistance of a financial firm, a bank, or even a brokerage firm. These fiduciaries are not limited to individuals. These types of business entities can 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. Remember, a fiduciary must put her client's interests before her own.

This can be a tightrope for brokers so they're normally held to a standard that simply says they're obligated to research the advice they're giving you and they act in good faith to serve your best interests based on their knowledge of your financial situation. 

You might entrust your assets to the care of these individuals during your lifetime but and the bulk of fiduciary responsibility shifts to your executor or to your successor trustee at your death. 

Alternate Fiduciaries 

It's important that you choose one or more alternate fiduciaries in case 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. 

Breach of Fiduciary Duty

It's actually against the law for a fiduciary to betray this trust. Lawyers can be disbarred for breaches of fiduciary duty. 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.