In the realm of estate planning, fiduciary relationships are necessary. You should understand the role of a fiduciary when you are devising your plan, we will provide an overview here.
Best Interests
First, let’s define the term “fiduciary”. A fiduciary is someone who is legally bound to act in the best interests of another person or a group of people. If you use a will to state your final wishes, you would name a personal representative (often referred to as executor or executrix) in the document to handle the estate administration tasks after your death. This person is a fiduciary, and they would have a fiduciary duty to protect the best interests of the beneficiaries that are named in the will. They would also have a duty to make sure that your wishes are carried out. The executor would admit the will to probate, and the court would provide supervision during the administration process. The executor will identify and inventory the assets that comprise the estate, send out notices to creditors, and pay final debts, including taxes. This will likely involve appraisals and liquidation of some, if not all, of the property in the estate. The assets will then be prepared for distribution to your heirs. Ultimately, the assets will be distributed to the beneficiaries in accordance with your wishes as stated in the will.
Trustee
Another type of fiduciary that is common in the field of estate planning is the trustee of a trust. The most commonly used trust is the revocable living trust. In terms of facilitating the distribution of your estate, this legal device is more effective than a simple will. If you establish this type of trust, you would act as the trustee during your life. You would name a successor to administer the trust after your passing. As we have stated, a will is admitted to probate. Probate is time-consuming and can be expensive. These are just two of the drawbacks.
Among the advantages of a living trust is that asset transfers from the trust to your heirs are not subject to probate. Another benefit is asset protection for your heirs. Structured correctly, the principal could be protected from the beneficiary’s creditors after you are gone. When you have a living trust, you do not have to provide the beneficiaries with lump sum inheritances all at once. You could instruct the trustee to distribute a certain amount each month, or you could dictate a different incremental distribution arrangement. In addition to the revocable living trust, there are many other types of trusts, and in all cases, the trustee has a fiduciary duty to the grantor and the beneficiaries, both current and future beneficiaries.
Guardian
Unfortunately, at some point in time, a significant percentage of elders become unable to take care of their own affairs. Alzheimer’s disease is a leading culprit. Other conditions also make it impossible for people to handle their own responsibilities. If there has been no action on this point, the state could be petitioned to appoint a guardian to act on behalf of an incapacitated adult. The individual in question would become a ward (the person under care) of the state.
Parents of young children often fail to address this issue. If it is not addressed, a court will designate guardians for their minor children. Too often, the guardian selected by the court is not the person the parents would have selected. When a court-appointed guardian has been established, the guardian has a fiduciary responsibility to the ward. The better practice is to name your own decision-makers in advance to prevent a guardianship, or at least instruct the court on who you prefer to act on your behalf. You can execute documents called durable powers of attorney. You can use one power of attorney to name someone to act on your behalf for financial matters, and you should create a power of attorney that applies to medical decision-making. The agent or agents that you name in these documents to act for you would have a fiduciary responsibility to serve your best interests.
Other Fiduciary Relationships
There are some fiduciary relationships that are not directly related to estate planning. Every lawyer has a fiduciary responsibility to their clients, and corporate boards have a fiduciary duty to serve the best interests of their stockholders. These are a couple of examples, and there are others.
Take Action Today!
Today is the day to act if you are going through life without estate plan. You can schedule a consultation at our Oklahoma City estate planning office if you call us at 405-843-6100. If you would rather send us a message, fill out our contact form and we will get back in touch with you promptly.
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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