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What is a Fiduciary?

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What is a fiduciary?

What is a fiduciary?

A fiduciary is a person (or group of people) entrusted with the responsibility of acting in the best interests of another person or organization. In a fiduciary relationship, the fiduciary has an ethical responsibility to act solely in the interest of the person, client or organization that they represent as opposed to their own interests or the interests of a third party.

Here are some common examples of fiduciaries:

  • An Estate Executor
  • A Trustee or Trust Administrator
  • Healthcare Representative
  • A Guardian
  • A person granted a Power of Attorney
  • A Lawyer
  • Conservator for those who are mentally or physically incapacitated
  • Certain financial advisors
  • Professional Fiduciary

The individual or organization that is named as the successor trustee is a fiduciary acting on behalf of the trust, the assets contained in the trust and in the interest of the beneficiaries of the trust. As a fiduciary, the trustee is obligated to make decisions that are in the best interest of the beneficiaries and abide by the language of the trust.

A fiduciary is often appointed to manage the assets or financial affairs of another person or organization. In these situation a fiduciary has a duty to manage the assets in a way that is in the best interests of the person or organization they are representing. Their actions should be completely free of self-interests. The fiduciary is expected to act with care, diligence, and in good faith. A person designated in an Advance Healthcare Directive to make the healthcare decisions on behalf of another person who has become incapacitated or is unable to make decisions for themselves is also considered a fiduciary. In these cases, the fiduciary has a legal or ethical obligation to act in the best interests of the person they represent.

Professional Fiduciaries practicing in the state of California are required to be licensed by the Professional Fiduciaries Bureau under the California Department of Consumer Affairs. Professional Fiduciaries sometimes have had previous careers working as attorneys, CPA’s, or social workers. The primary association that represents fiduciaries in California is the PROFESSIONAL FIDUCIARY ASSOCIATION OF CALIFORNIA.

According to the Professional Fiduciary Association of California, Professional Fiduciaries can have a wide variety of specialties including:

Accountant/Bookkeeping ⁃ Accountant/CPA ⁃ Appraisal Services ⁃ Arbitrator ⁃
Asset Management Services ⁃ Attorney ⁃ Bankruptcy Administration ⁃ Bill Payment  Services ⁃ Bio Hazard Removal ⁃ Care Management ⁃ Case Management ⁃ Charitable Remainder Trust ⁃ Conservatorship of Estate ⁃ Conservatorship of the Person ⁃ Consultant Services ⁃ Copyrights ⁃ Court Approved Accounting ⁃ Daily Money Manager ⁃ Diversified Personal Services ⁃ Enrolled Agent ⁃ Estate Administration (Probate) ⁃ Expert Witness ⁃ Family Consultant ⁃ Fiduciary Accounting ⁃ Financial Advisor ⁃ Fraud Investigation ⁃ Guardian Ad Litem ⁃ Guardianship ⁃ Hospice ⁃ In Home Care ⁃ In Home Care Placement ⁃ Informal Assistance ⁃ Insurance Trust Administration ⁃ Insurance ⁃ Insurance/Bonding ⁃ Intellectual Property ⁃ Irrevocable Trust Loans ⁃ Limited Conservatorships ⁃ Mental Health Services ⁃ Mortgage Services ⁃ Personal Financial Management ⁃ Physician ⁃ Power of Attorney ⁃ Probate Administrator ⁃ Probate Referee ⁃ Professional Mediator ⁃ Real Estate Finance ⁃ Real Estate Investment ⁃ Realtor ⁃ Receiver ⁃ Representative Payee ⁃ Reverse Mortgage ⁃ Special Needs Trust Administration ⁃ Tax Specialist ⁃ Title/Escrow ⁃ Trust Accounting ⁃ Trust Administration ⁃ Trust Litigation ⁃ VA & SS Payee ⁃ Wealth Management Planning

How much does a fiduciary charge?

Not all people acting as a fiduciary charge fees and the fees that a professional fiduciary charges can vary widely. The fees that a fiduciary charges depends on the specific services they provide, the area they practice, their level of experience and the complexity of the matter they are handling.

Some fiduciaries, such as trustees or guardians, may be appointed by a court / probate court and may not charge a fee for their services. In other cases, a fiduciary may charge a fee for their services which can be based on a fixed rate, an hourly rate, or a percentage of the assets they manage. For example, a financial advisor who serves as a fiduciary for their client may charge a percentage of the assets they manage. This type of payment structure is commonly referred to as an “asset-based fee.” This fee can range from a fraction of a percent to several percent. A lawyer or trust administrator who serves as a fiduciary for a trust or estate will typically charge an hourly rate for their services. Depending on the scope of the work to be conducted, they may also offer a flat fee to completing specific tasks. It is wise to discuss the fees with the fiduciary in advance and to have a clear understanding of the work they will be performing and will not performing.

How do you become a fiduciary?

In general, becoming a fiduciary involves demonstrating trustworthiness, honesty, integrity, and a desire to act in the best interests of others. The following are just a few examples of how you might become a fiduciary:

  • Trustee: You can become a trustee by being named in a living trust document. In these roles, you would be responsible for managing the assets of the trust and distributing them according to the terms of the trust.
  • Executor: You can become the executor of an estate by being named as such in a persons will or last will and testament. In these roles, you would be responsible for managing the assets of the estate or trust and distributing them according to the terms of the document.
  • Financial Advisor: You can become a financial advisor and act as a fiduciary for your clients. The licenses and certifications for becoming a financial advisor include a Series 7 (General Securities Representative Qualification Examination) or Series 65 (Uniform Investment Adviser Law Examination). As a financial advisor, you would be responsible for assisting clients in making financial decisions and managing their assets in a way that is in their best interests.
  • Guardian: You can become a guardian by being appointed by a court to manage the financial affairs or personal care of a minor, incapacitated adult or person with special needs.
  • Attorney: You can become an attorney by completing law school (in some states, such as California, a 4 year degree from a law school is not required) and passing the bar exam in a state. As an attorney, you may serve as a fiduciary in certain contexts.

Regardless of the specific role, becoming a fiduciary often requires a commitment to ongoing professional development and adherence to ethical standards. It is important to note that the specific requirements for becoming a fiduciary can vary depending on the state in which you live and the specific responsibilities of the role. It is a good idea to research the requirements in your area and to seek the guidance of a professional, such as an attorney if you have questions.

Estate Planning Questions and Answers

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Estate Planning Questions and Answers

Estate Planning Questions and Answers

Estate Planning Common Questions and Answers

The following is a list of common questions people ask when they first begin their estate planning research. For visit this page for a full list of our Estate Planning FAQ. We also have a estate planning glossary page if you have any questions about one of the terms you find here.

Here are some of the most common asked questions about estate planning:

What is an estate plan?

A good estate plan should be designed with several things in mind. It should determine how an individual’s assets will be preserved, managed, and distributed after death. An estate plan should strive to save on estate taxes, reduce court costs, protect assets and avoid probate. It should include a durable power of attorney, Advance Healthcare Directive and a will or trust.

What is a living trust?

A living trust is a legal tool for estate planning that allows a person (known as the Trustee) to hold another person’s (known as the Settlor or the creator of the trust) property for the benefit of someone else (the Beneficiary). It is an estate planning tool that can help family members and beneficiaries avoid a potentially lengthy probate process. A living trust is a legal document which lays out the terms of the trust and the assets that the grantor has assigned to it.

What is estate planning?

Estate planning is the creation on a plan and the preparation of tasks that serve to manage an individual’s assets in the event of their death or incapacitation. Estate planning includes the the distribution of assets to beneficiaries.

Who can help me create an estate plan?

Estate planning or the creation of an estate plan is commonly done with the help of an attorney experienced in estate law or an estate planning professional familiar with the estate laws of your state. There are also a variety of online resources that can help you design an estate plan. Typically the online estate planning tools are far less expensive but may not be ideal for more complex estate planning needs.

Is there a difference between a lawyer and attorney?

What is the difference between a lawyer and an attorney? All attorneys are lawyers, but not all lawyers are attorneys. The primary difference is that attorneys can represent clients in court but lawyers cannot.

Why do I need an estate plan?

Estate planning allows an individual to decide how their assets such as real estate, automobiles, personal property, life insurance policy, investments and cash will be distributed upon their passing. It also allows you to determine who will care for any non adult children or children with special needs. Some estate plans also allow you to determine how your medical care should be handled in case you become incapacitated.

What is an estate?

An estate is all property you own upon your death. Estates commonly include assets such as real estate, automobiles, collections, heirlooms, life insurance policies, investments and cash.

What is a will?

A will is a legal document that provides instructions for what should happen to a person’s assets after his or her death. This term “last will and testament” is commonly used to mean the same thing as a “will”, but to be exact, a last will and testament refers to the most recent version of a will. A will is commonly used to distribute a personal property, real estate, investments or business interests. It may also be used to appoint legal guardians.

What is probate?

Probate is a court administered process that transfers the estate of a deceased individual. An estate is made up of the decedents real estate, personal property, life insurance, bank accounts, investments and personal belongings.

In probate court, an executor (if there is a will) or an administrator (if there is no will) is appointed by the court as a representative to collect the assets, settle any debts and then distribute any remaining assets to the beneficiaries. All matters of probate are reviewed by the court. Each state has their own probate laws. Depending on your state, area and the complexity of the estate; probate can take anywhere for seven months to two years to complete.

Is probate public or private?

Probate cases are public and documents filed regarding the probate of a will are also available to the public. If it is your desire to keep the aspects of your estate private, you will want to consider speaking with a qualified trust and estate lawyer and look into having a living trust created.

Do I need to have a will?

Although there is no legal requirement to have a will, it is highly recommended that you create one. There are many benefits to having a will. A will provides instructions for what should happen to a person’s assets after death. A will is commonly used to distribute a personal property, real estate, investments or business interests. It may also be used to appoint legal guardians. If a person dies without a will, they are said to be intestate, and state intestacy laws govern the distribution of the property of the person who passed.

Do I need to have a will if I have a living trust?

Yes, although a living trust may cover much of the same things that a will covers, it is recommended that you create a pour-over will along with your Living Trust. A pour-over will covers any property that might not have been properly transferred to the Living Trust by the settlor. Without a pour-over will, property acquired after the living trust was created and listed in the Settlor’s name rather than in the name of the trust would normally pass to your heirs as determined under State law as opposed by the language of the trust. A pour-over will ensures that any such assets will be added to your trust and distributed to the beneficiaries named in the trust.

Do I need to use a lawyer to create a will?

No. Anyone can draft their own will, you will just want to make sure that it complies with all of your state laws to insure that it is valid. Although you do not need a lawyer to draft a will, it is advised that you consult a lawyer if you are not comfortable drafting your own, have a potentially complex estate or want to ensure that your getting all of the potential tax benefits that are available to you and your beneficiaries.

What is the difference between a will and a last will and testament?

The term “last will and testament” is commonly used to mean the same thing as a “will”. Although, to be exact, a last will and testament refers to the most recent version of a will.

What is a living will?

A living will is a written legal document that specifies the medical treatments you would and would not want to be used to keep you alive. A living will may also communicate additional medical preferences such as if you wish to be an organ donor or wish to donate your body to medical science. Often A medical power of attorney is used in conjunction with a living will. A medical power of attorney is a legal document that allows you to appoint a person to make healthcare / medical decisions on your behalf in the event that you are unable to make them for yourself.

What is an Advance Healthcare Directive?

An advance healthcare directive and a living will are terms that are commonly used interchangeably. An advance healthcare directive or advance directive is a legal document that explains how you would like to have your medical decisions be made if you are unable to make those decisions for yourself. An advance healthcare directive can be used as a guide for your loved ones when they need to make difficult decisions regarding your medical treatment options.

Do you have to pay taxes on an inheritance?

Inheritances are not considered income for Federal tax purposes, regardless of asset type. However, any subsequent earnings on an inherited assets are taxable. An inheritance tax is a state tax assessed to the beneficiary or heir, unlike an estate tax which is paid by the estate. As of 2022, only Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania impose an inheritance tax. An inheritance tax is not the same as an estate tax. An estate tax is assessed on the estate itself before its assets are distributed. The Estate Tax is a tax on your right to transfer property at your death. The fair market value of the estate assets is used to determine the total value of the estate; the total of all of these items is referred to as the Gross Estate. In 2022 (year of death), the Federal threshold requirement for paying an estate tax was $12,060,000. You can view the IRS Estate Tax Requirements here.

What is an estate planning trust?

A trust, estate planning trust, or sometimes called a living trust is a legal document that allows a person known as the Trustee, to hold the Settlor or creator of the trusts property for the benefit of someone else, referred to as the Beneficiary. A trust is an estate planning tool that can help family members and beneficiaries avoid a potentially lengthy probate process. A trust defines the Settlors wished and lists the assets assigned to the trust. The trustee of a trust is responsible for managing the trusts assets and handling the distribution of the trusts assets upon the Settlors passing. One of the greatest benefits of a trust is the ability to avoid the state probate process.  This can speed up the distribution of an estates assets and potentially save a great deal of money as well.

What is the person who creates a trust called?

The person who creates a trust, or a living trust is commonly referred to as a Settlor, Grantor or Trustor. These terms are commonly used interchangeably. The Settlor, Grantor, or Trustor of a trust decides how the trust will operate and contributes the assets to the trust. The Trustor, Settlor or Grantor is also the person who determines the beneficiaries, or people who will benefit and eventually receive the assets from the trust.

What is a trustee?

A trustee is referred to as the  person or firm that holds and administers the assets of a trust for the benefit of a third party known as a beneficiary. Trustees are required to make decisions in the best interest of the beneficiary.

Who appoints the trustee of a trust?

Typically it is the Settlor (also known as the grantor, trustor or creator) of a trust who appoints the trustee. Often times when the Settlor of the trust is still alive they designate themselves as the trustee. Upon their passing (and the trust becomes irrevocable), a new trustee who was typically previously determined by the Settlor becomes responsible for the trust. When the Settlor appointed trustee is unable or unwilling to carry out their duties, a court may appoint a trustee to manage the trust, its assets and distribution to the beneficiaries.