Fiduciaries are vitally important to estate planning. Unfortunately, however, many people have only a vague notion of what a fiduciary is.
According to Kiplinger, a fiduciary is someone with the authority to act on your behalf. As it relates to estate planning, a fiduciary is a person whom you select to carry out your wishes if you become incapacitated and lose your decision-making capacity or when you eventually die.
Types of fiduciaries
Fiduciaries have different titles based on what they are responsible for as it relates to your estate plan. The person you appoint to fulfill the provisions of your will is an executor. The person in charge of a trust that you establish is a trustee. If you appoint someone to make financial or medical decisions on your behalf with a power of attorney, that person may become an attorney-in-fact or a proxy. Different jurisdictions sometimes have preferences for certain terms, but they all essentially mean the same thing.
Duties of fiduciaries
According to the American Bar Association, a trustee’s duties involve administering the trust and distributing both the principal and the income according to the provisions that you set forth. An executor is responsible for paying any outstanding debts and fees involved in administering the estate and then distributing the remaining assets to your beneficiaries as you instruct in your will. The person you designate as your proxy with a power of attorney has the authority to make medical and/or financial decisions on your behalf. You can limit medical decision-making authority with a living will, which a health care proxy cannot override.
It is possible to appoint one person to fulfill more than one fiduciary role in your estate plan. However, you can also name a different fiduciary for each.
