Understanding Fiduciary Duties in Estate Planning

Fiduciary duties are a key legal principle in estate planning. In your estate plan, you designate specific fiduciaries who have high-level legal responsibilities in implementing your plan. Understanding the roles and responsibilities of each fiduciary is essential to ensuring that you choose a person with the right qualifications and skills to fulfill each fiduciary role.

What Is a Fiduciary?

In commonly-used terminology, a fiduciary is a person who accepts responsibility for managing identified affairs of another person solely for the benefit of that person, and not for the fiduciary’s benefit. A fiduciary holds a role of trust and must act in the best interests of the person making the appointment, which includes duties of care, loyalty, prudence, good faith, and confidentiality, as well as specific responsibilities related to their role. Fiduciaries may serve in a variety of different positions appointed by individuals or by a court.

Arizona laws include complex provisions relating to the legal responsibilities of fiduciaries. Professionals who serve as fiduciaries (as defined in the statute) must be licensed by the State of Arizona, but even non-professional fiduciaries (such as family members) are governed by state laws. The details of applicable state laws and regulations are not included in the scope of this article, which is limited to explaining fiduciary selection and designation in an estate plan.

Who Are the Fiduciaries in Your Estate Plan?

In the documents that are part of your estate plan, you designate several trusted individuals as fiduciaries to assume responsibility for carrying out specific roles in your estate. One person may hold multiple roles, or different individuals may fulfill different roles. Each fiduciary you select should have qualifications and skills that enable them to perform the necessary duties, or they should be able to work with a professional — such as an attorney — who can guide them fulfilling their fiduciary duties. Your estate planning attorney helps you navigate through the fiduciary selection process.

Executor of Your Estate

When you make a last will and testament, you designate a trusted individual as the executor of your estate. Under Arizona law, your executor has priority to request appointment by the probate court as the personal representative of your estate. If the executor that you designate elects to serve as the personal representative, that person assumes substantial fiduciary duties relating to administration, distribution, and settlement of your estate. The personal representative’s responsibilities are defined by Arizona laws and by the contents of your estate plan.

The personal representative of an estate usually retains an attorney to assist with the estate administration process. Even so, the person you select as your executor should be someone you trust to carry out your wishes and implement the decisions expressed in your estate documents. In a previous article, we provided important Tips for Choosing the Executor For Your Estate to help you navigate through the selection process.

Agents Under Your Durable Powers of Attorney

Your estate plan includes several documents in which you authorize an agent to perform specific fiduciary duties in the event you become incapacitated during your lifetime. Those documents include a durable financial power of attorney, durable healthcare (or medical) power of attorney, durable mental healthcare power of attorney, and a living will. Except for the financial power of attorney, these documents are part of what is known in Arizona as your advance directive or healthcare directive.

Each fiduciary authorized in a durable power of attorney in your estate plan should have basic knowledge and skills to carry out the responsibilities given to them in the document. In some cases, financial ability is important. In other cases, familiarity with your personal and medical needs and wishes is essential. Your estate planning attorney makes certain that you understand the responsibilities under each document and guides you through the selection process to make certain that you designate a person you trust who can perform the necessary duties.

Trustee

If your estate plan includes a trust, the trust document authorizes a trustee to implement the terms of the trust. Those fiduciary responsibilities include administering and managing the trust assets, as well as distributing them to the beneficiaries as required by the terms of the trust. In the case of a living trust, you may also designate a successor trustee to assume responsibility for the trust after your death, if you serve as the trustee initially.

In appointing a trustee or successor trustee, it is crucial to select a trusted person with the ability to carry out the terms established in the trust document. A trustee may work with a professional in making decisions, but the selected trustee should have basic qualifications and skills that enable them to fully understand the details involved in administration and distribution of the trust assets.

Selection of Fiduciaries in Your Estate Plan

Your estate plan gives rise to a wide range of fiduciary duties that apply in a variety of contexts. Before designating a trusted person for a particular fiduciary role, it is essential to understand the specific responsibilities of the position and to select a designee with corresponding qualifications. Relying on an experienced estate planning attorney for help in selecting your fiduciaries is a sound approach for ensuring suitable choices.

Schedule a Free Consultation With an East Valley Estate Planning Attorney

At Peterson Law Offices, estate planning is a primary focus of our practice. Schedule a free initial consultation by calling 480-878-5998 or using our online contact form.