11/25/2014

Corporate Fiduciaries

According to Merriam Webster Online, a fiduciary is a person in a position of authority whom the law obligates to act solely on behalf of the person he or she represents and in good faith. Examples of fiduciaries are agents, executors, trustees, guardians and officers of corporations. Unlike people in ordinary business relationships, fiduciaries may not seek personal benefit from their transactions with those they represent. 

When it comes time to select a decision maker for your will or trust, you’ll be selecting a fiduciary. If you are creating an irrevocable trust, usually done for tax reasons to remove assets from your taxable estate, you will want to select a demonstrably neutral trustee. The executor of your will or successor trustee of your revocable trust will be responsible for distributing your assets according to the terms of your will or trust document. If the trust is to continue for benefit of your heirs, the successor trustee will probably also be responsible for investing and managing the trust assets. While some individuals select a family member or friend to serve as fiduciary, others opt to designate an institution. 

When thinking about whether to name one or several individual fiduciaries, a corporate fiduciary, or a combination of individuals and organizations, there are several factors you may wish to consider.

Experience: The fiduciary you choose has significant responsibility for the financial well-being of current and future beneficiaries. One of the responsibilities that a fiduciary generally has is the managing the trust assets as investments, The fiduciary must be proficient in making investment decisions or choosing and monitoring an investment manager, weighing and evaluating requests for distributions, all potentially difficult decisions.  A fiduciary who is inexperienced or too close to the situation may not be the best choice.

Your fiduciary must maintain detailed records of income and principal funds disbursed and investment decisions made, as well as preparing and filing annual trust income tax returns (state and federal) that are required. Add to this the importance of keeping up with ever-changing and complex laws regarding trust administration, and it’s easy to see that a friend or family member may be burdened by these responsibilities. A corporate fiduciary with experience and expertise in trusts and investing can be an attractive alternative.

 

Objectivity: Even in the most loving families, relations can sometimes become difficult and emotionally charged. And while a carefully drafted trust document explains your intent and provides directions, it can be difficult for a fiduciary who is a parent, sibling, relative, or friend to act objectively. A corporate fiduciary, on the other hand, benefits from being an outsider who can make decisions free from bias and considerations of family dynamics.

Continuity: Because one of the principal reasons for establishing a trust is to provide for the future, it’s important to remember that over the years, age or illness could prevent an individual from performing the duties of a fiduciary. In naming a fiduciary, you want to be sure that as your family’s situation changes and time takes its toll, your fiduciary will continue to be responsive. By choosing a corporate fiduciary, you help ensure continuity for the full term of the trust. 

Questions to ask: when meeting with a representative of a corporate fiduciary, be prepared to ask questions about the fee structure, the minimum size of estate the fiduciary is willing to manage, how contact will be maintained between the fiduciary and the beneficiaries, frequency of reporting to the beneficiaries, and compliance filings with federal and state regulators.