Are You Prepared To Act As A Family Fiduciary?
When people create estate plans, they frequently name a family member as a fiduciary – either a successor trustee of a trust, an agent under durable power of attorney, or a personal representative under a last will and testament. Unfortunately, these documents don’t necessarily come with (straightforward) instructions for the family member selected as the fiduciary. Would you know where to start?
Central to any fiduciary position is the duty to act for the benefit of another. This includes:
Diligence: Read the Instrument that you act under. Then read it again. Make sure you understand it. Diligence further requires that you complete your duties as timely as possible.
Avoidance of Self-Dealing: Self-dealing is the use of your fiduciary position to benefit yourself. Use caution and consult with an attorney if you are tempted to, say, hire your own business to provide services to the trust or estate when you are the fiduciary. This would usually not be advisable unless there was some actual benefit to the trust, for example, your business is performing services at a discount that other service providers would not.
Avoid paying your own personal expenses from the assets you’re managing. If the document provides for you to receive a fee for your services, determine or agree upon the fee you will receive in advance, with either the principal or the other beneficiaries. If that is not possible, speak with an attorney about how to charge a reasonable fee. Don’t, however, take a lavish vacation, charge it to the estate, and then say, “Well that is my fee for my services.” You will very likely save yourself, and the other beneficiaries, a lot of grief and legal fees if you work it out in advance, in writing.
Act in Good Faith: Be truthful and transparent with beneficiaries. Maintain accurate records and copies of documents. It is helpful to use accounting software to assist with your duties. In addition, fiduciaries have the right to rely on professionals, including but not limited to, financial advisors, certified public accountants, attorneys, and realtor/brokers to assist them with discharging their duties.
Maintain Discretion: This is the flip side of the coin of transparency. Don’t reveal secrets or private information about the trust or estate you’re managing. Work with a knowledgeable attorney regarding what information you should disclose, when, and to whom.
Act with loyalty to the beneficiaries: A fiduciary may not take a position that is at odds with the beneficiaries. While this is very similar to avoidance of self-dealing, a breach of the fiduciary duty of loyalty can occur, for example, when a fiduciary receives a kick-back for investing in certain assets, delaying distribution to increase fees, or by borrowing money from the assets he or she is managing.
Act with Impartiality: It may be difficult to avoid the appearance of favoritism, when as a family member fiduciary, you are or always have been naturally closer to one or more of the beneficiaries. Whether the issues are perceived – or real – doubts about impartiality can stir feelings of resentment. To preserve family harmony, it may be best for the family fiduciary to opt out entirely in favor of a neutral professional.
Handle Assets with Prudence: Frequently, the Instrument appointing you will outline the types of investments you may make, but generally, fiduciaries are required to invest conservatively. The Prudent Investor Rule is outlined in RCW 11.100.020. “A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.”
Work with a qualified investment advisor, attend quarterly meetings with him or her to review investment performance. Review the investment performance materials you receive in the mail.
While it is your duty as a fiduciary to act primarily for the benefit of another, a family member fiduciary is likely to also be a beneficiary of the trust or estate as part of the principal’s plan to create intergenerational wealth. Your actions now are important, not only for the principal and beneficiaries, but for future generations as well.
Holly A. Surface, Attorney at Law
Des Moines Elder Law, 22024 Marine View Dr. S, Des Moines, WA. 98198
Phone: 206-212-0220 ext. 5
E-mail: Holly.Surface@rm-law.com