One of the most important decisions you make in the estate-planning process is the selection of fiduciaries who will represent you when you no longer can act for yourself. Your successor agent is tasked with responsibilities that encompass managing assets and liabilities, communication with and accounting to beneficiaries, planning for and complying with tax laws, all in accordance with the terms of the governing documents (trust, will, power of attorney, health card directive).
Here are four reasons to consider using a Professional Fiduciary in your estate planning.
1. MITIGATE THE LEGAL RISK
When you appoint a family member as a successor agent, such as trustee, they become a fiduciary for your trust, meaning they are legally obligated to manage the trust’s assets properly. However, as the trustee, they are also legally liable for your trust’s management. If any of the beneficiaries disagree with how the trustee is managing the trust, they may personally sue your trustee – even if the trustee has followed the advice of on attorney, financial advisor, or other qualified professional. Mistakes can be costly, particularly to your estate or fiduciary.
2. LEVERAGE EXPERTISE
Most people lock the knowledge and experience to navigate on evolving legal system and appropriately manage a trust over an extended period of time. Since family or friend fiduciaries typically have to rely on the expertise of professionals to carry out their fiduciary responsibilities, it often makes more sense to appoint someone who already has that expertise from the start.
3. REDUCE THE BURDEN
The role of a fiduciary is commonly an administrative job, similar to managing a small business. It requires accurate record keeping of all transactions, regular accounting reports, careful attention to critical deadlines, and dedication to following all new changes in regulatory requirements. Plus, the fiduciary must represent the estate in all legal proceedings, should they arise. Needless to say, all of these obligations can place a burden on the family/friend-elected fiduciary.
4. PREVENT CONFLICT
As unlikely as it might seem in your personal situation, conflicts are far more likely to occur when a friend or family member is appointed as fiduciary. Whether other friends or family members feel the wrong person is in charge or unforeseen conflicts of interest arise down the road, family/friend trustees have a way of creating division between loved ones.
In many cases, people turn to their family or friends first because they believe they will have their best interests in mind. However, while friends and family members usually have good intentions, they don’t always make the best decisions. Because professional fiduciaries manage trusts on a daily basis, they are familiar with all kinds of trusts, tax and estate planning strategies, and the legal responsibilities of a fiduciary. They have the knowledge and experience to successfully navigate an evolving legal system and appropriately manage and serve you over an extended period of time, during your lifetime and after.
Additionally, unlike banks, financial advisors, or corporate trustees (who profit from fee income derived from assets invested), professional fiduciaries are completely independent, usually earn set hourly fees and therefore are free from conflicts of interest.
Professional fiduciaries understand the mechanics of trust administration and are able to work quickly and efficiently through the processes needing to be accomplished.
