A fiduciary role comes with specific responsibilities.
Although people can take action to prevent accidents or devastating injuries, many things in life are beyond what a single person can control.
In other words, what happens to us cannot all be traced back to our own unforced errors and omissions.
It is possible to suffer a devastating illness or injury despite your best efforts.
Someone else must manage your affairs when such an event leads to incapacity.
Rather than passively accepting whoever the courts appoint in their chosen timeline, you can prepare for possible incapacity through estate planning.
When you include incapacity planning in your comprehensive estate plan, you select a trusted individual or organization to serve in a fiduciary role over your finances.
According to a Consumer Finance report, fiduciaries are legally required to act in the best interest of the person they were appointed to serve.
This holds true whether the fiduciary is a person or an organization.
Close family, friends, financial advisors, and attorneys are all viable options for such a role.
The person chosen should be fiscally responsible and trustworthy.
Another key ingredient is not necessarily that common: common sense.
Whether you are designated as a fiduciary for someone else or have named someone as your fiduciary, actions should always be made in the best interest of the property owner.
Within estate planning, fiduciaries are designated using power of attorney (POA) documents.
A power of attorney grants an individual, known as an agent or attorney in fact, authority to make healthcare or financial decisions on behalf of another person.
In addition to agents or attorneys in fact, executors, trustees, and guardians have fiduciary responsibilities.
A fiduciary must work in the best interest of those they serve.
Fiduciaries have four primary duties as they support the individual who has entrusted them with such authority.
What are these?
Act in the Best Interest of the Person Being Helped.
While it can be tempting to make a decision because it simplifies your life or benefits you financially, fiduciary duties prohibit such actions.
You must pay bills, manage investments, and make decisions to serve the best interests and well-being of the one you serve.
Manage Their Finances Carefully.
Financial responsibilities can be varied and expansive.
Fiduciaries must be detailed in their accounting and oversight of assets.
Keep Their Money Separate from Yours.
Mingling assets is strictly prohibited.
To avoid the appearance or possibility of financial mismanagement, you must keep all assets separate.
Maintain Detailed Records.
Because you are responsible for and accountable to others, you should keep records of all financial transaction.
Retaining bank statements, receipts, and other documents to demonstrate how you manage the money.
A trustee is one type of role subject to the rules for fiduciaries.
A trustee manages assets held by the trust for the benefit of the trust beneficiaries.
According to a Smart Asset article, trustees must adhere to the instructions outlined in the trust documents.
The duties of a trustee often include asset distribution, financial management, and compliance with financial and legal rules.
If parents set up a trust to benefit their children, then the trustee is obligated to work in the best interest of these children to support education, living expenses, or other needs.
The trustee must communicate with the beneficiaries about the state of the trust and file taxes for the trust.
Although trustees are one example of a fiduciary, various professions and roles must adhere to these standards.
Financial Advisors.
Investment decisions made by financial advisors on behalf of their clients should benefit their clients rather than themselves.
Attorneys.
The legal advice and services provided by attorneys acting as fiduciaries should protect the interests of their clients.
Executors.
The executors must pay off debts, oversee the estate, and distribute assets to beneficiaries per the last will and testament.
Guardians and Conservators.
The fiduciary responsibility of conservators and guardians is to benefit individuals who can no longer manage their own affairs due to age, incapacity, or disability.
Selecting a good fiduciary is crucial to estate planning.
This individual will have significant responsibilities and should be both capable and trustworthy to make legal and financial decisions.
The professional, family member, or friend you select should be reliable and prioritize your best interests.
Irresponsible or dishonest fiduciaries can create situations with legal disputes, mismanaged finances, and lost assets.
Yikes!
Working with an experienced estate planning attorney can help you determine your best options for these designations.
Whether you live in Kansas or Missouri, it is important to be proactive in selecting your own fiduciaries for trusts, last wills, and power of attorney documents.
You can contact our Harvest Law KC Overland Park estate planning office to request a consultation.
By understanding the roles and responsibilities of fiduciaries, you will be better equipped to select the appropriate person or organization for the role.
Whether serving as a trustee or in another role, a fiduciary is legally required to protect your assets and work in your best interest.
Working with an experienced estate planning attorney can help you create a comprehensive estate plan to meet your needs.
After all, the telos of estate planning is to protect everyone you love and everything you have.
This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.
References: Consumer Finance (Jun. 27, 2023) “What is a Fiduciary?” and Smart Asset (Jun. 12, 2024) “Differences of a Fiduciary vs. Trustee”
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