Estate planning involves more than just deciding how your assets will be distributed after you pass away. It also requires selecting individuals or entities who will be responsible for carrying out your wishes.
These trusted parties, known as fiduciaries, play a critical role in managing your estate and must act in the best interests of your beneficiaries. Understanding fiduciary relationships is essential for making informed decisions during the estate planning process.
The Executor’s Fiduciary Duty
When you create a will, you designate an executor to oversee the administration of your estate after your death. The executor is a fiduciary, meaning they have a legal obligation to act in the best interests of your estate and its beneficiaries.
This responsibility requires the executor to manage the estate with honesty, integrity, and loyalty, avoiding any actions that might conflict with the beneficiaries’ interests.
The executor’s duties include locating and valuing all assets. They also have to pay off debts and taxes, and distributing the remaining assets.
Throughout this process, the executor must adhere to the fiduciary standard. This role is vital in maintaining trust and ensuring that the estate is handled properly.
Trustees and Their Fiduciary Responsibilities
A living trust is a common estate planning tool that provides more control over how your assets are managed and distributed.
When you establish a living trust, you typically serve as the trustee during your lifetime, maintaining control over the trust. However, you must appoint a successor trustee to manage the trust after your passing.
The successor trustee steps into a fiduciary role similar to that of an executor. A trustee must manage and protect the trust’s assets according to the instructions you’ve outlined in the trust document.
This includes making investment decisions, handling distributions to beneficiaries, and ensuring that the trust is administered in a way that aligns with your intentions.
For instance, let’s say you want to prevent a beneficiary from receiving a lump sum all at once. You can simply direct the trustee to make staggered distributions over time to preserve the resources.
Irrevocable trusts, which are often used for purposes like estate tax planning or asset protection, also require a trustee with fiduciary responsibilities. These trusts are less flexible, so the trustee’s role in adhering strictly to the trust terms is crucial.
Conservatorship and Fiduciary Duties
As people age, the possibility of becoming incapacitated increases. If you haven’t planned for this eventuality, the court may appoint a conservator to make decisions on your behalf. This conservator would have a fiduciary duty to manage your affairs in a way that best serves your interests.
To avoid the potential for court-appointed conservatorship, you can create a comprehensive incapacity plan. This typically includes a durable power of attorney, which allows you to appoint someone you trust to make decisions for you if you become incapacitated. The appointed agent, like an executor or trustee, has a fiduciary duty to act in your best interests.
A guardian is appointed when children lose their parents or if their parents are unable to care for them. A guardian has a fiduciary duty to act in the child’s best interests, making decisions that affect their well-being.
Other Types of Fiduciary Relationships
Fiduciary relationships extend beyond the realm of estate planning. For example, attorneys have a fiduciary duty to act in the best interests of their clients. Similarly, financial advisors, retirement plan administrators, and corporate board members have fiduciary responsibilities.
Join us for a FREE Webinar on Fiduciary Relationships in Estate Planning on Saturday, September 21st
Attorney Collins will lead an insightful session on safeguarding your family’s wealth through effective estate planning. This is your opportunity to understand the critical role of fiduciaries and ensure your legacy is protected.
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