A Professional Fiduciary: What is it? Do you need one?
Caption: Imagine having to untangle this person’s affairs.
What is a Professional Fiduciary? What Do They Do?
A Fiduciary is a person acting in a position of trust. Fiduciary relationships and obligations are based on trust. A Fiduciary has an obligation to act in good faith for the benefit of the person(s) with whose interests he/she is entrusted .
A Private Professional Fiduciary is a broad term: A Fiduciary can act as a trustee, administrator of an estate, or as Conservator of the Person and/or the Estate, (in some states this position is called the Guardian of the Person and/of the Estate). A Fiduciary can also serve as Power of Attorney for Finance and/or Health Care, act as case manager and pay bills.
In California, a Fiduciary named in three or more cases that are not family members must be licensed by the state. Other states have similar laws, but not all. I believe licensing is very important for the consumer as the licensing bureau will be able to inform the consumer of any disciplinary actions and if the fiduciary is currently licensed. Licensing also establishes a professional code of conduct, continuing education and basic training requirements.
Sometimes the reason someone hires a Private Professional Fiduciary is really sad. The person has no one in their life that they trust to help them. The reasons for this vary, I would like to share a recent example of this in my practice.
Last year a woman was given my name by a social worker from the hospital. As more professionals learn about the benefits of hiring a Fiduciary more referrals come through the various helping professions such as social workers, discharge planners and Hospice. This woman, I’ll call her Kate, had an aggressive form of kidney cancer, was on Hospice and needed help.
I went and met Kate, arranged for an attorney to do estate planning for her, and had those very difficult discussions one has to have at the end of their life.
One weekend she called me and said she wasn’t feeling well and didn’t know what to do. I called Hospice and went over to her home. She decided that she wanted to move to a convalescent hospital as she didn’t feel safe at home and didn’t want caregivers. Two days later I moved her to a convalescent hospital. Kate was the only person I have ever met that liked being in a convalescent hospital and even thought the food was good.
She shared with me that had she understood that she could get the kind of help provided by a Fiduciary she might have made difference choices in her cancer treatment.
Kate passed away three months after I met her and I am now in the process of selling her house and trying to find her estranged son. I really enjoyed knowing her and helping her find her way in the final months of her life and it was terribly sad that she was so alone at the end of her life. By living with others and having an advocate she died among friends knowing that she and her affairs would be taken care of according to her wishes. Her heirs are two checkers that work in the local grocery store.
Why Would Someone Hire a Private Professional Fiduciary?
Experienced Professional Fiduciaries have administrated many trusts and estates etc. They understand the laws and also know the other professionals such as lawyers, appraisers, and real estate agents needed to assist in the administration. Fiduciaries develop networks of reputable service providers as well, and perform ongoing supervision of caregivers, medical treatment, housing, household maintenance and finances.
Fiduciaries are not allowed to use their position to gain personal advantage, profit or opportunity. The Fiduciary should never put themselves in a position in which his or her own interests might conflict with the interests of the person to whom they owe fiduciary obligations.
Non-professionals often agree to serve without understanding what the job entails. For example a trustee or administrator of an estate must keep very detailed financial records of trust assets. And if they want to be compensated for their time — which can be substantial — their time records must be equally detailed. If appointed by the court as the administrator of an estate or a Conservator or Guardian, the requirements of record keeping, accounting and reporting are the same, but they will also be scrutinized by the court.
Note: Family members and caregivers are the most likely people to cause elder abuse. Especially financial elder abuse.
I am often appointed after there has been a case of financial elder abuse. In one case the victim, I’ll call her Janice, had been encouraged by her attorney to hire me after her husband passed.
Janice was 95 years old and very proud and stubborn. She had a caregiver that at least was hired through an agency — which should have provided appropriate screening and oversight to protect Janice, but this woman stole over $250,000 in one year.
Janice had given the caregiver her debit cards so the caregiver could make deposits at the ATM. The caregiver then withdrew the maximum every day from each card. She stole Janice’s jewelry, including wedding and engagement rings, and I am pretty sure that she sedated Janice. She also hid the bank statements.
The theft was discovered by the Janice’s daughter during a visit. The daughter looked at a bank statement and saw all the withdrawals and charges. An alerting clue: Janice definitely did not buy hair extensions.
Banks are supposed to monitor unusual activity, but neither bank did. The caregiver was arrested and prosecuted. One bank returned all the money that was withdrawn, the other only refunded the first two months of withdrawals.
Acting as Trustee:
A Private Professional Fiduciary is often appointed if the grantor (the person that funds the trust) does not have family and friends living nearby, there is conflict in the family, or they are smart enough to know they want to hire a professional. The grantor may not be comfortable having family or friends involved in their finances.
Most importantly being a trustee is a new job for a non-professional. It can be very time consuming and stressful.
If someone is appointed the trustee of a Special Needs Trust, they must learn how to administer the trust properly so the beneficiary does not lose their benefits.
Administration of an Estate:
Again being appointed administrator of an estate brings forward the same issues as being appointed a trustee. Again it is an unfamiliar and new job for the non-professional administrator.
The death of a parent has the potential to bring out the worst traits of the rest of the family. If one sibling is named trustee or executor, the other sibling(s) often resent that sibling. Or the named sibling resents doing all the work.
If there are co-trustees or executors, any problems the named people had with each other in the past with come to the forefront immediately. I know families whose relationships never survived dealing with the estate.
If a Fiduciary is hired, the family may resent the Fiduciary, but we are professional and not family. The job will get done efficiently and properly and the family relationship will have a better chance of surviving the contentious process of estate administration.
My office often does formal estate accountings for non-professionals — a legal requirement for the trustee in many situations. The accounting tracks, in a formal document set out by probate code, all the income and expenses during the period of administration.
Often the non-professional is just not equipped to track money adequately and create a formal accounting. The non-professional may not be careful about comingling funds with their own funds or keeping detailed records.
Many times the results were not so benign. Hired when suspicions have been aroused by the court or other interested parties, I have found that as I review the bank statements and other financial documents, the trusted friend or family member used the trust or estate funds as their own bank account.
One person had the trust pay her rent, take her out to restaurants and buy her clothes and jewelry. This went on for years as the grantor did not request an accounting when she was alive. After she passed, the French beneficiaries were very excited to be inheriting money and requested an accounting. The trustee had to return hundreds of thousands of dollars to the trust.
If a Private Professional Fiduciary did the same thing, that professional would have lost their license and been prosecuted for theft.
If a person needs to be conserved, someone petitions to appoint the conservator.
The court will investigate the proposed conservator’s background. The proposed conservator must also be able to post a bond. It is, of course, ideal if a family member is willing to be the conservator, but sometimes the family member or friend cannot pass the background check, is not bondable, or is just not capable. The court appoints the conservator/guardian and the case is constantly supervised by the court.
In one case, I was appointed the Conservator of the Person of a young man as his parents had too many child protective agency complaints against them. In addition to that, the father had a felony conviction. Neither parent would have been able to be the conservator of the estate or the child’s trustee, as they were not bondable.
Being a Conservator of the Person is a very complex and time consuming. The named conservator is responsible for the conservatee’s wellbeing and health. They have to know how to navigate hospital systems and also insurance issues.
Being Conservator of the Estate is very similar to being a trustee, as the conservator is responsible for all the conservatee’s finances including real estate, art collections, vehicles and businesses. A non-professional may not be able to manage all of the above prudently,
The court will monitor all of the conservator’s actions. If improper actions were taken the conservator, be it professional or non-professional, could face legal consequences.
My conservatees have ranged in age from their late teens into the 90s.
Power of Attorney for Finance
Generally the person named as Trustee will also be named as Power of Attorney, but you don’t need to have a trust to have someone named as the Agent. The Power of Attorney appointment ends on the death of the principal.
A Private Professional Fiduciary can be named for the same reasons as stated above for the conservator of the estate.
Power of Attorney for Healthcare.
Often, people do not have someone nearby that they would feel comfortable asking to help them to deal with medical issues. Those Fiduciaries that do act as power of attorney for healthcare or case managers know how to work the medical system.
Being able to handle finances is usually the first skill to go as one ages. At this time, the client is especially vulnerable to people who don’t have the highest ethical standards. The helpful neighbor, family member, caregiver, if so inclined, will steal as much as they can. This is very, very common.
The Fiduciary will keep records on Quicken/QuickBooks or similar accounting software. As part of the check and balance system to protect the client, the Fiduciary should give regular financial reports, either a simple Profit and Loss report or a more formal probate style accounting, to the client or another responsible party (family member or attorney). Those records will also help in preparing tax returns.
What are the things to watch out for in retaining a Fiduciary?
When you start looking for a Fiduciary, ideally your attorney will recommend a few professional fiduciaries for you to interview.
Please don’t go online and look at websites. Anyone can state they are the best Fiduciary in the county and have lots of pretty pictures.
Find out how many years they have been in business, and if they are in a state that has licensing. Make sure you go on the licensing bureau’s website to confirm the license is in good standing and that the licensee has never been fined or sanctioned.
Do not fall for marketing strategies. It doesn’t matter if a Fiduciary’s website says the fiduciary does X, Y or Z. Make sure the Fiduciary has a lot of experience in their field.
Interview the Fiduciaries in person as this person is going to be very important to you, be it immediately or in the future. You must be comfortable with them and confident that they will follow out your wishes. Find out how many years they have been practicing as a professional fiduciary.
Call references. The references should include CPAs and attorneys that have used the Fiduciary in the past. If possible, get client references also, though that can be more difficult for the Fiduciary to provide as the clients are often not competent or prefer confidentiality, but the Fiduciary should be able to provide one or two family members of clients if not direct client referrals.
Make sure the services you want are provided by the person you are interviewing. For example, not all Fiduciaries are comfortable dealing with medical issues. If they hire case managers, interview the case manager as well.
How accessible is the Fiduciary? Find out office hours and their procedure if you have an emergency. What is their response time by phone or email? How large is the office? Will you be working with the fiduciary or a staff person?
Ask about the internal controls at the Fiduciary’s office. Who has access to personal and financial records? What safeguards and cross checks are in place?
How do I tell a good one from a bad one?
Again, multiple professional references are very important.
If there is a licensing bureau or professional organization in your state, make sure that there haven’t be any legitimate complaints or sanctions of the professional.
How do I go about finding a Fiduciary?
The best source is your trusted CPA and/or estate planning attorney. They will know the fiduciaries’ work and reputation. There are also professional organizations and the licensing bureau.
Discuss, Comment, Ask Questions
from Jan Johnson (unverified) at Nov 13 2019 - 3:23pm
Who checks on the Fiduciary professional to be certain that he/she is honest and carrying out responsibilities appropriately? Are there outside audits, etc.?
from Kim S (member) at Nov 13 2019 - 6:23pm
Hi, It depends on the case, but accountings are very important. In addition to being sent to the grantor or beneficiary, the accounting can be sent to the CPA or attorney to be reviewed. In my state there is the licensing bureau who will research any complaint. Of course, if it is a court supervised case, the court will make sure the fiduciary is carrying out responsibilities appropriately. If the fiduciary is not acting responsibly the court will remove them and if affects their license. In order to be a licensed fiduciary the proposed fiduciary has to go through thorough background checks. If the fiduicuary is found to have lied about a something (criminal) in their past their license will be removed.
from Tomonthebeach (member) at Nov 4 2019 - 12:11pm
I highly recommend that retirees NOT appoint family members as executors or trustees. I was both once. Not only is it a thankless job, but if you bill the estate for your time (perfectly legal), your kith and kin might resent your draining their inheritance for yourself. They have no idea that you faced a mess like the picture in this story, and spent many hours chasing down past-due bills, lost bank accounts, etc.
Then when it comes to divvying up the estate, you will often have to deal with the Smothers-Brothers effect - "Mom always liked you best." Sibs who feel less loved often demand relatively bigger slices of the estate, even if it is just furniture. I have counseled several peers to cede to sibling demands in the interest of family peace. "It's not as if you need the money, John." I'd say. In the 3 cases in my experience sibling relationships were actually strengthened by the executor's largesse. That is why my attorney is my executor - that and the fact that my spouse only knows how to spend money; not manage it. LOL
Footnote: Mom's 3rd and final hubby considered himself a financial genius despite evidence that he did not know an ETF from stock option. I noticed that mom had over $50K in her checking account where it was drawing zero interest from Wells Fargo, the least fiduciary bank in the US. I was told: "Jimmy knows best." Had I insisted that they hire a fiduciary to help with household finances, I likely would have avoided a man-week of sorting out their estates. Imagine finding 6 months of overdue bills while there was $50,000 in the checking account.