If you suffer an accident and cannot manage your affairs, estate planning can change your life. By naming someone you trust as fiduciary, you give them the power to manage your resources in your best interest. When a loved one names you as fiduciary, you must protect their interests to the best of your ability.
As Consumer Finance reports, a fiduciary is a person or organization legally required to act in the best interest of another person. This role can be filled by financial advisors, attorneys, or even a close family member. When you’re named as someone’s fiduciary, your primary duty is to manage their money and property to benefit them, not you.
Fiduciaries are commonly appointed through a power of attorney (POA), which grants them the authority to make financial or health-related decisions for another person. Other roles that involve fiduciary responsibilities include trustees, guardians and executors.
What are the Duties of a Fiduciary?
A fiduciary’s duties go beyond simply making decisions. There are four primary responsibilities that a fiduciary must follow:
- Act in the Best Interest of the Person You’re Helping – All decisions you make as a fiduciary must benefit the person you’re helping, not yourself. Whether you manage investments, pay bills, or make legal decisions, the person’s well-being is your top priority.
- Manage Their Finances Carefully – As a fiduciary, you may handle a wide range of financial matters, from balancing a bank account to overseeing investments. You are expected to manage these finances with care and attention to detail.
- Keep Their Money Separate from Yours – One of the most essential rules for fiduciaries is never to mix your own money with theirs. Keeping their assets separate helps ensure that there is no confusion or risk of financial mismanagement.
- Maintain Detailed Records – Keeping accurate records of all financial transactions is crucial. This includes receipts, bank statements and other documents showing how you manage their money.
What Is a Trustee’s Role in Estate Planning?
A trustee is a specific type of fiduciary. Trustees are responsible for managing assets held in a trust for the benefit of others, known as beneficiaries. Smart Asset states that they must follow the instructions in the trust document and act in the beneficiaries’ best interests. Trustees have many essential tasks, including managing investments, distributing assets and ensuring that the trust complies with legal and financial rules.
For example, many parents set up trusts for their children. The trustee’s job is to manage the assets in that trust in accordance with its obligations toward the children. These could be money for education, living expenses, or something else. Trustees must also file taxes and communicate with beneficiaries about the trust’s status.
What Types of Fiduciaries Might You Encounter?
In addition to trustees, there are several other common types of fiduciaries you might come across in estate planning:
- Financial Advisors: Some advisors are fiduciaries, meaning they must make investment decisions that benefit you, not them.
- Attorneys: Attorneys acting as fiduciaries must provide legal advice and services that protect your best interests.
- Executors: When someone passes away, the executor of their will is responsible for distributing their assets and paying off debts.
- Guardians and Conservators: These fiduciaries manage the personal and financial affairs of someone who can no longer care for themselves due to age, disability, or incapacity.
Why Is It Important to Choose the Right Fiduciary?
Choosing a fiduciary is one of the most critical decisions in estate planning. You need someone you trust to make financial and legal decisions on your behalf. Whether it’s a family member, friend, or professional, your fiduciary should be responsible, reliable and have your best interests at heart.
The wrong fiduciary can create problems such as mismanaged finances, legal disputes, or even lost assets. That’s why it’s essential to talk to an estate planning attorney who can help guide you through the process and ensure that your fiduciary understands their responsibilities.
Ensure the Right Fiduciary Manages Your Estate
Choosing a fiduciary and understanding their duties is a critical step in the estate planning process. To ensure that you have the right plan in place for your future, consider speaking with an estate planning attorney. They can help you set up trusts, name fiduciaries and create a comprehensive plan protecting your assets and loved ones.
Key Takeaways:
- Understand Fiduciary Duties: Knowing what fiduciaries do helps you choose the right person to manage your finances.
- Trustees Play a Key Role: Trustees ensure that trust assets are handled properly and according to your wishes.
- Legal Safeguards Are in Place: Fiduciaries are legally required to act in your best interests and protect your assets.
- Ensure Your Family’s Security: Working with an attorney helps you select trustworthy fiduciaries and create a solid estate plan.
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
References: Consumer Finance (Jun. 27, 2023) “What is a Fiduciary?” and Smart Asset (Jun. 12, 2024) “Differences of a Fiduciary vs. Trustee”
