What is a fiduciary, and do I need one?

Choosing a financial adviser can be a difficult decision. As you identify an adviser, it is important to consider hiring one with fiduciary powers.

What is a fiduciary?

A fiduciary is a manager with whom you have a special (or fiduciary) relationship, entrusted to exercise authority and control over your property, and legally obligated to act in your best interests. A critical piece of managing your finances and your personal affairs is choosing someone to act for you when you are unable to act for yourself. This is referred to as giving someone Power of Attorney.

What is a Power of Attorney?

A Power of Attorney is a contractual relationship between you (the principal), and someone else (who acts as your agent). Your agent, or attorney-in-fact, has a fiduciary responsibility to act in your best interests. Executing a Power of Attorney allows you to appoint a decision maker before you need one, and in some cases, while you are mentally competent to do so. While it is difficult to foresee that you will lose mental and physical abilities to manage your money, planning for the unexpected is critical.

Some of us might never use our fiduciary. We might be lucky enough to never experience an episode of incapacity or diminished capacity. When we pass away, we will all pass away possessing and owning an estate.

For some of us, the entirety of our estate could pass to our surviving spouse without using our fiduciary. For most of us, however, we will need someone to act on our behalf, and carry out our estate plan, after we die.

Many clients have told me, “I’ll be dead, I don’t care what happens.” Nobody wants to leave behind a tangled mess for their loved ones to fight about. If you don’t name a fiduciary to act for you after death, you are inviting a multitude of problems and potential conflicts.

Do you need a fiduciary?

Absolutely. For many people, deciding who they should name as their fiduciary is a difficult decision. You should choose someone you can trust, is committed to the role and who possesses the mental acumen to fulfill the fiduciary role to which he or she is appointed.

Many people instinctively default to choosing one or more of their children as their fiduciary. But an individual such as a child, friend, relative or spouse, might not be the best or prudent choice to make decisions for you when you are unable.

If you choose a family member or an unbiased individual, you cannot account for what might occur to them such as drug and alcohol issues, their financial problems, conflict with their siblings, accusations of wrongdoing or mismanagement and much more.

Why you should consider a professional fiduciary?

Just as you can appoint a family member, you can appoint an unbiased professional fiduciary such as a bank (with trust powers which is known as a corporate fiduciary) or a trust company.

There are many benefits to naming a corporate fiduciary: Unlimited lifespan of the estate, experienced professionals to administer your affairs and the necessary experience to carry out your wishes.

Some clients disregard a corporate fiduciary as an option once they realize that a company will charge a fee for their services. However, even children who act as fiduciaries might charge a fee (usually upsetting their siblings).

Often the corporate fiduciary’s fee can be well worth the peace of mind knowing that your family will be well served by a competent professional minimizing family disagreements regarding your estate.

It is important to note that often a corporate fiduciary will provide additional services such as financial management of your assets, tax advisement and increased efficiencies while working with your attorney and accountant.

When you need financial, tax, legal or medical advice, you seek out the advice of a trusted professional. A fiduciary is a critical part of a financial and estate plan, carrying out your wishes when you are unable. He or she will ensure that your estate is distributed correctly, will be impartial to your beneficiaries and will not be pressured to deviate from your plan.

If you are interested in naming a corporate fiduciary as your executor or trustee, you should contact local financial institution or attorney for additional information.

Products offered by Wealth Advisory Services, Heartland Retirement Plan Services, and Fiduciary and Trust not FDIC Insured, are not bank guaranteed and might lose value.