Exploring the Role Professional Fiduciaries Play in Estate Planning

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Diving Into the World of Professional Fiduciaries

If you’ve been reading the blog lately, you might have noticed most of our articles so far have been about providing general information so you can plan smarter. But what about some specifics? In this article, we’ll dive into the nitty gritty of choosing the people that will make the decisions for you by exploring the very important role professional fiduciaries play in the estate planning process.

Sidebar: Thanks for checking out our five-part series on estate planning; parts three through five are coming soon!

Key Takeaways:

  • Professional fiduciaries are required by law to have your back
  • A professional fiduciary or PFAC member can be your safest bet to finding the best of both worlds: the professional expertise of a corporate fiduciary, and the personal attention of small practitioner
  • More often than not, a professional fiduciary is a great choice for modern families

So, you might already know one of the many reasons it's important to plan ahead is that California already has a plan for you. You might also know it’s important to do some incapacity planning to take care of times when you can't quite make decisions, but you're still around. Despite this, it's common for people to put planning off for years, or never get around to it at all. But, say we're already convinced planning is important and we should get started. Who should we actually choose to take on the roles of trustee, agent, etc.? Enter the professional fiduciary.

WHAT IS A PROFESSIONAL FIDUCIARY?

To understand the role a professional fiduciary can have in estate planning, let’s first explore what a fiduciary is. According to Investopedia, a fiduciary is defined as "...a person or organization that owes to another the duties of good faith and trust. The highest legal duty of one party to another, it also involves being bound ethically to act in the other's best interests." Think about that for a second. What this really means is the law requires a fiduciary to act in your best interest. That interest must come before third-parties and even themselves. Pretty serious stuff.

In fact, California law addresses specific ethical duties a fiduciary owes a client in Title 16, California Code of Regulations, Sections 4470 through 4484, which you can find here. What these code sections are really getting at is this: a fiduciary has your back.  Now, in the estate planning arena, a fiduciary can take on many different roles, all of which require the same “best-interest” standard noted above. For you, a fiduciary might serve as a:

  1. Trustee to carry out the terms of a living, special needs or testamentary trust;
  2. Agent under a power of attorney, to act on your behalf when certain financial or medical issues crop up;
  3. Conservator of estate, to manage and protect the financial interests of another;
  4. Conservator of person, to make decisions regarding the health, shelter and medical needs of someone the court has determined is incapacitated;
  5. Monetary advisor, to take care of bills, paperwork, budgeting, etc.;
  6. Care broker, to act as a point of contact for the multiple organizations that become involved in a person’s estate over time; and/or
  7. Personal representative, to administer a decedent’s estate through probate.

In California, fiduciaries are often members of the Professional Fiduciary Association of California (PFAC). PFAC defines a fiduciary as follows: “a person who assumes a position of trust and responsibility serving an individual by probate court appointment.” Not only are PFAC members bound by California law, but they must also abide by the PFAC Code of Ethics, which can be found here.

Professional fiduciaries in California are also regulated by the Professional Fiduciaries Bureau, which ensures professionals are trained and registered with the state as per the Professional Fiduciaries Act. Specific requirements for licensing include passing an exam and completing thirty (30) hours of approved education courses, as well as earning fifteen (15) hours of continuing education credit (two (2) hours of which, must be in ethics for fiduciaries) each year for renewal.

So bottom line, fiduciaries are the real deal and they can play a pivotal role in the estate planning process. Like we’ve said before, it’s important to plan ahead so you can ensure someone is there for your significant other, children and family members in a time of great vulnerability and need. But, while it’s most important to plan ahead, choosing someone that will step into these roles willingly and with a purpose is nearly just as vital.

WHO NEEDS A FIDUCIARY?

After thinking about it a bit, you might have some non-professionals in mind. You might then be wondering, ‘Do I need a fiduciary?’ Well, think of it this way: often times, a family member or lifelong friend you might choose to be successor trustee or your agent under a power of attorney will not have the requisite time or expertise to handle various duties. It could be as simple as the named trustee living too far away or as complicated as having to take over the reigns of a vastly diverse set of financial products.

The spectrum of possible scenarios can lead to great uncertainty. What's certain, however, is that non-professionals are often unprepared to deal with many of the issues that come with carrying out the terms of a trust or acting on your behalf in certain financial or medical circumstances. When this happens, what you worked so hard to protect is suddenly at risk.

What to do. Well, we would advise you strongly consider naming a professional fiduciary ahead of time to handle all roles or at least a select few of them. Sure, many people often do name non-professionals as their successor trustees and agents in their estate planning. We recognize this is still a good option for some people. But, before appointing a non-professional, consider whether they are equipped to take on investment management, accounting, taxes and bookkeeping, have a handle on your estate plan, and its objectives, and if he or she will be able to act impartially and put the best interests of the beneficiaries first.

 
Increasingly, a professional fiduciary, especially one that comes at the recommendation of other professionals, is a great choice in today’s complex planning environment.
— The Schlau|Rogers Team

If you have someone in mind, great. If you're thinking of someone that can handle just a few simple tasks, then maybe divide the roles among various people. Some roles could be covered by trusted non-professional family members with experience in respective areas, and other roles could be handled by a professional fiduciary. Perhaps you do have a diverse portfolio consisting of many different financial products, commercial and residential real estate and various business interests. If that's the case, you likely already have a financial advisor (or a team of advisors) managing your finances. Even more reason to name a professional fiduciary as you'll need a point of contact for the multiple parties involved to coordinate carrying out the terms of your trust.

For those with large estates, you may have already named an institutional fiduciary to handle many, if not all, financial situations. This is not a problem per se; however, institutional fiduciaries often do not have the flexibility to handle individual, nuanced situations. And sometimes they are just unwilling to do so. This could lead to liquidation of assets to carry out the terms of a trust and fund beneficiaries. Not always what you’re looking for.

THE BEST OF BOTH WORLDS

A professional fiduciary or PFAC member can be your safest bet to finding the best of both worlds: the professional expertise of a corporate fiduciary, and the personal attention of a small practitioner. For instance, fiduciaries often do have the flexibility required to carry out the terms of a trust as it's designed - greater flexibility than a corporate trust company or bank, particularly regarding investing trust assets or managing them in the way you intended. Having less assets under management usually means individual attention is possible. With individual attention, you're more likely to get the most out of your assets.

Increasingly, a professional fiduciary, especially one that comes at the recommendation of other professionals, is a great choice in today's complex planning environment. That's why we, at Schlau|Rogers, have made it a point to partner with PFAC members all over California as we grow our practice. We firmly believe professional fiduciaries are part of Your Smarter Estate Plan.™

Not only is the estate planning environment becoming more and more complex, but today’s typical family is not what it used to be. What was once out of the ordinary, is now ubiquitous. More and more common are blended families with children from other marriages, single parents, adoptions, same-sex marriages, small business interests, young professionals that move from job to job every few years, each with their own retirement accounts, etc. More complex familial arrangements like these often require a greater handle on the responsibilities that come with acting as a trustee, agent, or the like. Seniors are also in need of professional services. PFAC itself says this:

“…there are 26,000 “orphan” seniors in San Diego alone. And many seniors with family choose to appoint a Professional Fiduciary to avoid burdening family members. Even the most capable adult child is frequently fully committed to work and home responsibilities and may not live conveniently nearby. And, of course, many family members would not be a good choice for fiduciary work due to the lack of appropriate skills or the potential for conflict with siblings or other relatives.”

To us, today’s planning environment and the modern family illustrate a professional fiduciary is often a great choice. We believe it just makes sense to look into appointing a professional fiduciary to serve your best interests. And we’re just the place to do it. If you’d like, we can discuss naming a professional fiduciary to be a part of your estate plan in a strategy session. Here’s to planning smarter.

Matthew Schlau is a co-founding principal of Schlau|Rogers and an estate and business planning lawyer practicing in Orange, San Diego, Los Angeles and Riverside counties. He is a husband, father, blogger, crossfitter, and really good at helping people achieve their goals.

At Schlau|Rogers, we do more than just estate and business planning, probate and trust administration. Our objective is to provide individually-tailored plans that allow you the opportunity to reach your goals, all while minimizing headaches and risk, and maximizing peace of mind.

On our blog, you'll find useful information about estate and business planning, probate and trust administration, as well as some tidbits on personal finance, taxes, and anything else we think will help minimize headaches, worry and risk, all while maximizing peace of mind.

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