Who Do You Trust With Your Trust? The Importance of Fiduciaries
It’s a sad fact that disputes over a parent’s life care, or the disposition of assets after a death, can severely damage even the most loving family relationships. If you became mentally or physically incapacitated, would you want your affairs managed by a family member, a friend, an attorney, a professional fiduciary, or a corporate trust department? What about after your death – would your choice be the same?
A fiduciary may administer your Revocable Trust, manage investments, pay ongoing expenses, file income tax returns, and oversee the complexities of whatever estate you have built over your lifetime. Even when a Trust document lays out clear directions, someone must assure that your directions are followed, and exercise appropriate judgment over matters of life care, investments, or the liquidation of assets.
That is the definition of a fiduciary – one who takes responsibility for a position of trust, and agrees to manage medical, financial, and other affairs for someone who can no longer make his or her own important decisions. Click here for more information from the Professional Fiduciary Association of California (PFAC).
Sometimes it is wise to select someone other than a family member or friend as a neutral Professional Fiduciary who is solely interested is carrying out the terms of your trust document. In California, most non-family fiduciaries must be licensed by the state’s Professional Fiduciaries Bureau, which operates within the Department of Consumer Affairs. Anyone who serves more than three (3) people as a conservator, trustee or agent appointed to administer a durable power of attorney must obtain a professional fiduciary license.
Serving as a Professional Fiduciary involves a variety of needed skills. Those who choose this career often come from different backgrounds such as counseling and gerontology, or finance and investments.
A licensed, professional fiduciary offers protection to clients and their families. In part, this is because of the educational standards and competency testing necessary to earn a professional fiduciary license. As further oversight, they are subject to fines, sanctions, license suspensions, revocations, and even criminal prosecution for violations of the law. Licensed professional fiduciaries are also required to undergo a criminal background screening.
Some professionals are exempt from the licensing requirement: attorneys, CPAs, IRS agents, broker-dealers and investment advisers, and employees of trust companies, institutions insured by the FDIC, corporations regulated by the SEC, and public offices or agencies.
Clients sometimes consider asking their personal attorney or CPA to serve as the fiduciary for their trusts, but this may be asking the professional advisor to act in areas outside their scope of experience. Medical, legal, and financial management can involve complex considerations, in addition to managing family relationships and expectations.
Designating co-trustees might be considered, but in such cases all trustees must be in unanimous agreement over every decision, a requirement not always easy to achieve. Co-trustees who live some distance from one another may find it inconvenient to circulate documents for all necessary signatures.
Corporate fiduciaries, such as a Trust Department at a bank or investment firm, are another option. They are usually insured and monitored by state or federal regulators. Clients should be aware that corporate fiduciaries typically use their own investment programs, regardless of performance, while charging fees. Some will only manage accounts totaling $1 million and above due to their special professional expertise. In some cases, banks and corporations may not provide the kind of personalized relationship a client desires.
Your connection with the trustee or fiduciary you designate is vital, because he or she may direct personal health care decisions on your behalf, as well as handling finances, and managing family and professional relationships. This decision deserves careful thought and consideration about the skills needed for the position. When selecting a Professional Fiduciary, you may want to request information about licensing, education, experience, and insurance. Or you may entrust a family member or friend to pick a suitable fiduciary when the need arises.
Finally, you should consider some backup choices to serve as your trustee or fiduciary if your first choice declines or is unable to serve. A Professional Fiduciary is often named as the backup trustee.
For additional and more detailed information, you may view these brochures from the Professional Fiduciaries Bureau:
– Do you need a Professional Fiduciary?
– What is a Professional Fiduciary?
– What you should know before hiring a Professional Fiduciary
You can also search for a list of licensed, individual Professional Fiduciaries by County (click here).
Please contact my Nevada County office if we can be of any help.