Fiduciaries: what are they and why do you need them?
One of the most important items in your estate planning process is naming the fiduciaries who will execute your wishes and manage your assets when needed. First, you may be wondering what exactly is a fiduciary. Very simply, a fiduciary is a third-party representative who is appointed to act on behalf of someone else.
Two of the most common fiduciaries in estate planning are the personal representative, the person who handles the assets that are included in someone’s last will and testament‡; and a trustee, someone who handles the assets that have been placed in a trust‡.
So, why do you need a fiduciary and how do you choose the right one? Here are some things to keep in mind.
Carefully select a fiduciary that you trust to execute your plans.
Handling an estate may seem like a simple process that anyone can easily manage. However, don’t underestimate both the amount of work and the expertise needed to carry out required duties.
First, there are a variety of laws that must be navigated, including complicated probate laws. Additionally, accounting for estates and trusts can be extremely technical and require excellent record keeping and tracking. Your fiduciaries must be able to show through proper accounting that they have handled and managed the estate and its assets in an accurate, fair and unbiased manner. If you pick someone who is lacking in knowledge or organizational skills they are at risk for liability and personal fines.
Tax planning is also a necessary expertise—it’s imperative that an estate is run in a tax-efficient manner. Fiduciaries must understand how their actions affect the estate or trust as well as the beneficiaries‡. This includes how assets are invested and distributed since trusts are subject to different tax rates and laws than individuals or corporations.
There may be disagreements.
Secondly, you may truly believe that your family members and friends will easily work together and agree on how your assets should be handled. Unfortunately, this is rarely the case. Appointing a family member or friend frequently causes tension or distress that may not have existed before. If not handled properly, this can easily result in stress, damaged relations or, in some cases, legal action between or against your loved ones.
You don’t have to be wealthy to use a professional fiduciary.
Employing a professional fiduciary is cost-effective, and something you should think about even if you do not consider yourself to be a high-net-worth individual‡. Your immediate reaction may be that it’s more expensive to hire a fiduciary to handle everything, rather than seeking individual counsel from different experts as needed. However, in many cases, a fiduciary’s cost will be equal to or less expensive.
At the end of the day, it’s in your best interest to carefully research your options to select the appropriate fiduciary for your own unique situation. Designating the right person to efficiently and quickly handle these details in a difficult time is truly one of the best gifts you can leave behind.
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Mr. Tjaden serves as executive vice president and chief fiduciary officer. He is responsible for supervising all fiduciary activities and staff for UMB, including offices in Kansas City, St. Louis, Denver, Phoenix and Salina, as well as the Trust Company in South Dakota. Mr. Tjaden oversees Personal Trust, Custody, Foundations, Trust Legal and Business Support Services within the Private Wealth Management division. He joined UMB in 1977. Mr. Tjaden earned a bachelor’s degree in business administration and political science from Kansas State University. He also earned a Juris Doctor and a master’s in business administration from the University of Kansas. Additionally, Mr. Tjaden is a Certified Trust and Financial Advisor and a member of the Estate Planning Society, the Johnson County Bar Association and the Kansas Bar Association.