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Why testators may want to work with a professional fiduciary

On Behalf of | Oct 22, 2024 | Estate Planning |

Individuals and couples who have high-value resources to address in their estate plans often require more complex documentation. Frequently, they may choose to use a trust as a means of passing property to the next generation instead of relying on a will. Trusts can be beneficial because they can limit tax liability and creditor claims.

They can prevent loved ones from fighting over an individual’s legacy and thereby diminishing the overall value of the estate. They can also protect beneficiaries from the potential negative consequences of a large inheritance, including people’s squandering what they inherit or becoming vulnerable to financial abuse and fraud. Selecting the right trustee can be as important as properly funding the trust.

Many people perseverate for months trying to choose the right person to carry out their legacy. It can be difficult to choose one person to take on all that responsibility or even several trusted individuals to serve as close trustees. Some trustors eventually reach the conclusion that their best option is to hire a professional fiduciary.

What is a professional fiduciary?

A trustee has a fiduciary duty to the beneficiaries of the trust. They should make every reasonable effort to act in the best interests of beneficiaries regardless of their own preferences. A professional fiduciary may be an attorney, a business professional or a licensed financial manager who assumes responsibility for trust administration.

A professional fiduciary risks not just litigation and family conflict if they violate their duty to trust beneficiaries but possibly also their career and professional licensing. They therefore have a powerful incentive to conform with the law and the instructions provided by the trustor.

When is a professional fiduciary the right choice?

Every trustor has their own unique circumstances that guide their decision about who to name to manage their legacy. For some people, a lack of nearby, trustworthy family members can be reason enough to hire a professional fiduciary.

For others, the desire to leave a multi-generational legacy might be an incentive to hire a professional fiduciary. Those who want to use remaining trust assets to fund a scholarship and those transferring a business to a trust may find that a professional fiduciary is the best option.

When the professional managing the trust dies, becomes incapacitated or retires, another professional working for the same company can take over that responsibility. Additionally, professional fiduciaries typically do not have pre-existing relationships with beneficiaries, which limits the likelihood of them feeling an emotional attachment to beneficiaries and compromising the services they provide as a result.

Choosing the right trustee, possibly by hiring a professional fiduciary, is a crucial component of effective estate planning. Those preparing to leave a significant legacy behind may need to think carefully about who they entrust with that legacy.

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