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Who Me? A Fiduciary?
Fiduciary: involving trust, especially with regard to the relationship between a trustee and a beneficiary (adjective). A Trustee (noun).
So, has a family member or friend appointed you as a “fiduciary” for his or her estate plan? If yes, then consider it an honor to be considered worthy of such trust and confidence. On the other hand, be mindful of the attending responsibilities you will need to fulfill. In fact, any failure to satisfy these responsibilities could land you in hot water. Those are consequences you want to avoid.
What is a Fiduciary?
For our purposes, the legal titles for a fiduciary in the estate planning, estate administration and estate distribution contexts include executor, personal representative or trustee. The difference between these titles is the specific role played by the fiduciary at a given time. Commonly, the roles of executor, personal representative and trustee are played by the same person.
Executor and personal representative are really different titles for the same role: the person appointed in a will to wrap up an estate in probate. This role lasts only until the probate process is formally closed and the will directs that the estate is either distributed outright to the beneficiary (or beneficiaries) or to a trustee appointed in the will as “beneficiary” for administration and distribution to the actual beneficiaries under the will.
As an alternative to using a will and its eventual probate, a living trust can be created while the estate owner is living. If properly created and funded, this approach may avoid any future probate of the estate whether distributed outright or otherwise.
Why do people choose to leave estate assets in trust for their loved ones instead of simply providing for outright distributions? The reasons are as varied and unique as each family situation. For example, heirs may have special needs, spendthrift tendencies, marital problems, lawsuits or bankruptcy issues. In addition, there may be legacy assets to preserve and retain long-term, such as family businesses, farms, ranches or vacation homes.
All that noted, before you agree now to serve as a fiduciary later, you should get informed, organized, connected and, ultimately, protected.
If you have been appointed as a fiduciary, there are certain steps you should take to help ensure all goes according to plan when the time comes for you to assume your duties.
For example, what is the estate game plan, and how do you fit into it? What better person to educate you regarding the estate plan and the assets involved than the person actually appointing you in his or her estate plan. Schedule time to meet face to face and request copies of all relevant legal documents in advance. Also suggest that the drafting attorney be present to provide an overview of the estate plan and answer any questions you may have after reading the legal documents.
Consider making a list of questions before the meeting. For example, you may want to know who will be guiding you through the process, whether co-fiduciary and successors have been appointed, whether you may hire legal, accounting and/or investment professionals and whether you can appoint a corporate fiduciary if anything gets too complicated. Also, you may want to know whether you will be compensated for your services (or at least reimbursed for out-of-pocket expenses).
One of the essential keys to a successful estate plan is the degree to which it is organized and the level of recordkeeping before you step in as trustee. Why? The person who owned the assets, created the estate plan and appointed you will no longer be among the living when you assume your responsibilities. Without proper organization and recordkeeping, you could spend months (or years) on a very time-consuming and expensive “treasure hunt” that could have been avoided. For example, does the estate owner have a safe-deposit box? If yes, which bank, what is the box number and where is the key kept?
Therefore, in addition to copies of all relevant legal documents, ask the estate owner to provide you with a detailed schedule of his or her assets. This schedule should include what they are and where they are located. The more detail, the better.
While you are at it, after having met with the estate planning attorney, have the estate owner provide the names and contact information for his or her CPA, insurance agent and financial advisor. Follow up with a quick note or email introducing yourself, as communication is a two-way street. Consider meeting with these individuals, as you may be working closely together and having a relationship established beforehand may make working together easier.
Your fundamental duty as a fiduciary is loyalty to the estate owner and his or her beneficiaries while remaining impartial and avoiding conflicts of interest. You also must manage and account for the assets under your stewardship even more carefully than your own. This includes insuring physical assets and taking steps to preserve the value of invested assets.
What about taxes and creditors? If you are less than timely when it comes to filing appropriate tax returns and providing required notice to creditors of the estate, then you may be held personally liable!
Serving as a fiduciary is at once an honor and a serious responsibility. Before you agree to serve, look before you leap.