Understanding Professional Fiduciary Services
Most of us are fortunate enough to have family members or friends that we feel comfortable naming as our Healthcare Advocate, Power of Attorney, Trustee, or Executor in our estate documents. These are important roles and require the right people to handle things for you after you’re gone. But what do you do if this isn’t an option for you or the route you want to take?
I often have people ask me this question and the reasons they are looking for help are often deeply personal, such as:
Their children simply aren’t dependable, responsible, or emotionally capable enough to handle the job.
They are no longer talking to their children, or their children are no longer talking to them.
They are concerned there will be family conflict.
They have outlived their family members.
They never had any children or never were married.
They have no one that lives close by.
So who do you turn to? When I explain to people that their problem can easily be solved by using the services of third-party professionals, I hear surprise and relief. Surprise, because most people have no idea this option even exists, and relief, because they can now find peace from what has been causing them a lot of stress.
These third-party professionals are known as fiduciaries. Let’s take a look at what that means and who they are.
What Is a Professional Fiduciary?
A fiduciary is someone legally required to act in another person’s best interests. The legal obligations they are required to follow are:
Duty of Loyalty – acting solely in the best interest of their client.
Duty of Care – managing assets carefully and performing due diligence.
Duty of Good Faith – acting honestly, fairly, and with full transparency.
A professional fiduciary can be a person or organization that you hire to act on your behalf in financial, legal, or personal matters. So, for your estate they can serve in any of the following roles:
Executor or personal representative of your will
Trustee of your trust
Financial power of attorney
Healthcare representative or guardian/conservator
As an agent responsible for managing bills, property, or distributions
By using a professional fiduciary, you are employing someone who is trained and experienced in the role you ask them to serve. This can be very unlike a family member who has no experience or training and is serving simply out of personal obligation.
When Might Someone Consider Using One?
As I outlined above, there can be many different situations where a professional fiduciary may make sense, but let’s look at these reasons a little bit more.
You Are a Senior with No Close Family Left
If you are an older adult, you may outlive your spouse, siblings, and close friends. Perhaps you never had children or, if you did, they might live far away and have little involvement in your daily life.
Without someone trustworthy to manage your affairs, the court may eventually need to appoint someone for you if you become incapacitated, or after your death. Planning ahead allows you to choose who that person will be instead of leaving the decision to the court.
You Have Estranged Family Relationships
Perhaps you are estranged from your children or other relatives. Naming one child over another may create resentment, conflict, or even legal disputes.
A neutral third party can sometimes reduce tension because they are not emotionally involved in family history or old disagreements.
You Love Your Children — But They’re Not Good with Money
Believe it or not, this is not an uncommon conversation between parents.
Maybe you have one child who struggles financially. Another is disorganized. Another avoids paperwork entirely. One may be trustworthy but becomes overwhelmed under pressure.
Being a good son or daughter does not automatically mean someone is equipped to handle probate, taxes, investments, real estate, or trust administration.
You might want to choose a professional trustee or executor specifically because you want to preserve family relationships and avoid placing that burden on your children.
You Have a Complex Estate or Family Situation
Other scenarios where a professional fiduciary can be helpful are if:
You have a blended family
You have a beneficiary with special needs
Your estate consists of significant wealth or property
Your family members live in different states
You have a business or rental property that will need to continue operating
You have concern about conflict between your beneficiaries
Sometimes the best choice is not the closest relative — it’s the most qualified person for the responsibility being asked of them.
How Do You Find a Professional Fiduciary?
Attorneys, CPAs, Banks, Trust Companies, Private fiduciary firms, and even professionals working independently are the most common outlets. Each of these options may have strengths and weaknesses depending on your situation.
The following are some ways you can get started in finding the right one for you:
Asking your estate planning attorney if they offer this service and, if not, if they can provide referrals to others who do (many attorneys work closely with local fiduciary providers).
Asking financial advisors or accountants for recommendations.
Looking online for local professional fiduciary organizations.
Speaking with trust departments at banks.
Checking state licensing boards (if applicable).
Who you choose is an important decision. They not only need to be competent in the services you are asking of them, but they may also need to manage emotionally charged family situations. When I help people find a fiduciary provider, I always advise they speak to at least two or three. This gives you the opportunity to compare their styles and their fees, and to find the one you feel most trusting and comfortable with.
How Do You Know If Someone Is Qualified?
In my experience, I have found many differences between professionals in the same line of work. Some are just better than others. When interviewing fiduciaries, you may find that not all have the same training, experience, or professional manner that you are looking for. Some states license professional fiduciaries, while others have little regulation.
The following are some questions you may want to consider asking of the ones you speak to:
What experience do you have?
Are you licensed or certified?
Do you carry insurance or bonding?
Have you handled estates or trusts similar to mine?
How are your fees structured?
Who would actually handle my case?
What happens if you retire, become ill, or your company closes?
And don’t be afraid to verify their credentials and ask for references whenever possible.
How Do You Appoint a Fiduciary Once You Find One?
There are generally two approaches to this:
Option 1: Name the Fiduciary Directly
You can consider specifically naming a professional fiduciary, trust company, or bank in your documents.
This provides clarity and certainty, but there can be drawbacks. For instance:
The person may retire or die before you
The company may merge or close
Fees or policies may change over time
Relationships may change
Don’t be afraid to ask the company or individual you choose as to what protections would be in place for you should any of the above happen. You may also want to ask if backup options could be included in your documents.
Option 2: Leave Instructions to Appoint One Later
You could leave written instructions directing that a professional fiduciary be appointed after death or incapacity. This could provide some flexibility for your family members or other advisor, such as an attorney, to select someone.
If your instructions are broad and allow multiple people to be involved in the selection, however, there could be disagreements over such things:
Who should serve
What company to use
What fees are acceptable
Whether a family member should serve instead
Discussing these options with your estate planning attorney will help you make the right decision for your situation.
How Professional Fiduciaries Are Paid
When a family member or friend serves as an executor or trustee of your estate, they are legally entitled to compensation for their work. This is paid out of the estate and is often based on a percentage of the value of the estate.
Fiduciaries are similarly paid out of the estate, but their fee is based on their own fee schedule, such as:
An hourly rate
A flat fee
A percentage of the estate or trust assets
A combination of these methods
Their fees can also vary widely depending on:
The complexity of the estate
The amount of work involved
The professional’s experience
State laws and local market rates
You may find also that some banks and trust companies have minimum asset requirements before agreeing to serve as trustee.
This is why it’s important to compare the rates each charge, and how they charge it. And it’s also important to keep in mind that using a professional fiduciary can possibly save the estate money by:
Avoiding mistakes
Preventing family disputes
Keeping records organized
Meeting legal deadlines
Reducing court involvement
A Conversation Worth Having
Professional fiduciaries are not the right solution for everyone. But I assume you are reading this because you may be in one of the situations discussed in the beginning. If that is the case, a third-party fiduciary may be able to provide the structure, neutrality, and stability that will be needed after you’re gone.
In my workshops, I always stress to my audience that one of the most important decisions you make is deciding who will carry out your wishes.
Sometimes the most loving choice is recognizing that family members may not be the best people for the job.
If this topic raises questions about your own situation, I strongly encourage you to discuss it with an estate planning attorney, and sooner than later. Planning ahead gives you more control — and can make things much easier for the people left behind.
