The Role of a Fiduciary in Estate Planning - Werner Law Firm

The Role of a Fiduciary in Estate Planning

Infidelity is the act of betraying someone’s trust. Its opposite is fidelity, which involves loyalty. In the very same linguistic branch, we have “fiduciary”, which describes a relationship of trust and responsibility between two individuals, where one (the fiduciary) is acting as a representative for the other (the principal).

In estate planning, the planner, grantor, or principal relies on the good will and loyalty of those around them to adhere to their fiduciary duty and fulfill their roles as trustees, agents, attorneys, and administrators. Fiduciary duty also exists as a legal term in the world of business, where company directors have a fiduciary duty to their stakeholders, and other elements of the business depending on its structure.

As a noun, a fiduciary is a person who, generally, is working on behalf of someone else. As such, they hold a great responsibility towards that someone. Legally, they hold a fiduciary duty (this time, the word is an adjective) towards the person they are representing, and a breach of that fiduciary duty may incur hefty damages (as it can provide the basis for a tort claim, i.e. a civil lawsuit).

Examples of Fiduciaries in Estate Planning

Estate planning is full of fiduciaries with fiduciary duties, as the very core of any estate plan is the people who are entrusted with the task of carrying it out. The estate plan itself is a collection of legal documents detailing the different elements that play a role in a person’s end-of-life, from their final days in healthcare to the eventual dissolution of their estate.

But when something is not perfectly accounted for within the estate plan, it is up to the fiduciary to make a decision. This is often where the topic of fiduciary duty becomes complicated, as the principal’s best interests may be difficult to interpret.

It is the fiduciary’s responsibility to infer what the principal would have wanted as best they can, as per the information available to them through the estate plan (and its various components). Some examples of fiduciaries in estate planning include:

Administrator or Executor of Will

The classic example of a fiduciary in estate planning is the administrator or executor of a will. When a will is written and notarized, it is the executor’s duty to bring that will and a copy of the decedent’s death certificate to the local courts to petition for probate, and begin the process overseeing the distribution of the decedent’s estate.

The executor is then chosen by the probate court (the decedent’s own choice usually being taken heavily into consideration), at which point they become the decedent’s fiduciary, and have a responsibility to execute the will as legitimated by the court.

The executor must act in the interest of the decedent (through their will) rather than themselves or the beneficiaries, even if the decedent’s will conflicts with the beneficiaries’ wishes. Aside from naming an executor, a will can also be used to name a guardian for your minor children.

Trustee of a Living Trust

The next example is the trustee of a living trust. Where a living trust is an agreement between a grantor and a trustee to hold funds and property “in trust” for a beneficiary, the trustee plays the important role of managing and distributing everything funded into the trust as per the trust agreement and the grantor’s wishes and intent.

While a court oversees the probate process, the trustee in typically in total control of the trust’s management and dissolution. Therefore, it may be prudent to instate a trust protector to oversee the trustee’s actions and ensure that they are acting in accordance with their fiduciary duty towards the trust and the grantor.

Agent or Attorney-in-Fact in a Power of Attorney

When writing a power of attorney document, the “attorney-in-fact” or simply the “agent” is the person who receives the power to act in your name. A power of attorney explicitly limits that ability to any degree you determine. For example, a power of attorney document could be written to only grant your attorney-in-fact the right to act in your name for a set number of days, or hours.

On the other hand, a power of attorney can be made “durable”, allowing them to continue to act in your name even after you have been incapacitated. This requires tremendous trust – and as such, the agent or attorney-in-fact holds a fiduciary duty to use their power in your best interests. A power of attorney is no longer valid once you pass away, or once you remove an agent’s power.

Health Care Proxy or Agent

Advance directives typically include both the living will and the durable medical/healthcare power of attorney, also known as a healthcare proxy. In a living will, you explain what procedures you expressly allow or disallow, based on what you know about your overall health and condition.

You may use a living will to explain that you are in favor of (or expressly forbid) the use of certain lifesaving measures. If you are struggling with a terminal condition or suffer from a chronic illness, you may more directly explain what you do and do not want from your end-of-life care.

A healthcare proxy or durable healthcare power of attorney gives someone else the ability to make these decisions for you, should they not have been noted in your living will. Healthcare proxies are especially important if you feel you are at risk for becoming mentally incapacitated due to illness and/or age.

In this case, your proxy or agent has a fiduciary duty to make medical decisions you would have made. Even if you create a document naming a healthcare proxy, it is still recommended to create a living will as well, as proxies don’t always make similar treatment decisions in the absence of meaningful input on their principal’s wishes.

What Constitutes a Breach of Fiduciary Duty?

In its simplest terms, any intentional breach of fiduciary duty (by acting in the fiduciary’s best interest rather than the principal’s best interest) may be cause for a civil lawsuit. It becomes more complicated on a case-by-case basis, and if you feel there may have been a breach in fiduciary duty during the estate planning process of a loved one, be sure to take that concern up with a legal professional.

 

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