What is a Fiduciary

What is a Fiduciary?

The caregiving and supporter role often arises out of crisis. A loved one becomes disabled, or worse, unexpectedly passes away. It’s natural for family members and friends to want to help, but it’s also important to consider the legal obligations underpinning these roles.

Defining “Fiduciary”

Fiduciary roles often arise out of legal documents and relationships such as a trustee or executor under a Will; the parent-child relationship; spouses; and business partnerships. But did you know that a fiduciary role can arise out of an informal relationship as well? These informal relationships, or “confidential” relationships can occur by simply undertaking to act on behalf of another person. This is especially true in relationships where one person is more vulnerable due to disability, and is relying on the other person to assist, or act on their behalf.

Consider, for example, an aging parent who is starting to have failing health and memory problems. They may begin looking to their adult child to assist them with making certain life decisions or engaging in every day transactions. They may need them to start accompanying them to doctors’ appointments and be their “surrogate” when interacting with third parties concerning billing matters or scheduling. In such a situation, there is no doubt that the adult child who engages to assist this parent has become a “fiduciary”. Even an informal fiduciary such as this has legal responsibilities, and correspondingly, personal liability if they fail.

The Legal Responsibility of a Fiduciary

In formal fiduciary relationships, the legal responsibilities of the fiduciary are clearly defined in the legal document under which they arose. For example, an agent acting under a valid Durable Power of Attorney need look no further than the signed document to know what is expected of them. The Texas statutory form even includes a two-page explanation of fiduciary duties and the liability of the agent for breach of those duties.

But what about the example of the adult child helping the disabled parent? What if the parent did not have any formal estate planning documents in place before they became ill? As it turns out, they owe similar fiduciary duties to the aging parent just as a legally appointed agent under a valid legal document. These general duties include: (1) duty of loyalty and utmost good faith; (2) duty of candor (being open and honest); (3) duty to refrain from self-dealing; (4) duty to act with integrity; (5) duty of fair, honest dealing; and (6) duty of full disclosure (being transparent in decision-making). With duties like this, the informal fiduciary may want to consider how to make the relationship more formal to insure their acts are protected.

How to Legalize an Informal Fiduciary Relationship

Informal relationships can be formalized through proper legal planning. This can include making estate planning documents such as power of attorney documents where the individual appoints a legal “agent” to act on their behalf. However, such documents are dependent on the individual having the mental capacity to understand what these documents mean. But what if the individual is disabled and has lost this capacity?

In cases where the disabled individual lacks mental capacity to create legal documents, a legal proceeding called a guardianship, may be necessary. In a guardianship, a court can appoint someone to act on behalf of the disabled individual for healthcare and residential decisions as well as financial decisions. These are one-time legal proceedings that offer the fiduciary better legal protection as they instill the guardian with full legal authority to act on behalf of the disabled individual. Guardianships are also supervised by the court, creating accountability as it concerns the fiduciary duties owed to the disabled individual.

Whether a fiduciary role has arisen out of a relationship is very fact specific. Before undertaking to act on behalf of another, it’s important to be advised as to the legal role and responsibility, and potential personal liability.

Adriane S. Grace is a guardianship attorney in Frisco, Texas who regularly assists and counsels clients who are acting in a caregiver or supporter role. If you have questions about guardianship or fiduciary duties in the Frisco, Prosper, Allen, McKinney, Richardson, Dallas, Carrollton, The Colony, or Denton area, please complete the contact form to request a meeting.

 

 

When to Update a Will and Estate Plan

How Often Should I Update My Will and Estate Plan?

“When to update a Will” is a frequent question in my estate planning practice. I build contingencies into my clients’ Will and Trust documents  so that they only need review it at certain life events. Below are important life events that trigger the need to update a Will and estate plan.

Top 5 Reasons for Updating a Will and Estate Plan

  1. Marriage or Divorce
  2. Birth of children or grandchildren
  3. Interstate Move
  4. Tax law changes
  5. Retirement

1. Marriage or Divorce

Texas is a community property state. Our state law presumes that all income and property acquired during a marriage is community property, belonging to both spouses. Each spouse is entitled to an undivided 1/2 interest in the community property. As such, each spouse can gift away their 1/2 interest in their Will. However, if a spouse does not make a Will, the surviving spouse could end up splitting the community property with multiple other people under our state’s default inheritance laws.

For example, under Texas inheritance laws, if a spouse dies leaving behind children who are not also the children of the surviving spouse, the children inherit the community property interest. Under this scenario, a surviving spouse could end up sharing ownership in the marital home with their stepchildren. Spouses can avoid these draconian inheritance laws by making a Will and/or Trust.

Fortunately, state law provides that when spouses divorce, all gifts made under a Will to the divorced spouse are void. However, a divorced spouse with minor children may want to create a new Will, and appoint a trustee for their child’s inheritance, if they want to prevent the other parent from controlling the estate they leave behind.

2. Birth of Children or Grandchildren

Minor children cannot legally own property. Because minor children have a right to inherit under our state laws, it is imperative that parents, and grandparents, plan for this inheritance. This includes carefully selecting a guardian and trustee for any money or property a minor child could inherit.

3. Interstate Move

Although the United States constitution vests the federal government with authority to regulate interstate commerce, certain matters are reserved to the states. This includes laws related to the family relationship and property ownership. As such, state laws concerning rights of inheritance vary.

In addition to planning for inheritance, the formal estate planning process also includes planning for “probate”, or the legal process for transferring property at death. Because probate process varies state to state, so too does the type of estate plan needed to deal with such probate. Therefore, when you move to a new state, it is important to have your estate plan reviewed.

4. Tax Law Changes

Thankfully, we do not have estate tax in Texas, but federal law provides for inheritance taxation. Historically, federal law has provided an exemption from the inheritance tax, but these exemptions are subject to change. For example, just 18 years ago, the exemption was only $1 million. Today, it’s over $11 million per person, but only until December 31, 2025. The estate tax rate is currently set at 40%. By comparison, the highest income tax rate is currently 37%. Therefore, if you have an estate greater than $1 million (inclusive of cash, real estate, retirement accounts, and life insurance policies), you may need to have your estate plan reviewed periodically to determine if your beneficiaries could be taxed.

5. Retirement

Ask any financial advisor; they will tell you that retirement planning isn’t just about when you can afford to stop working, but also planning to pay for disability and long term care. The CDC says our life expectancy is now 78.7 years. Yet as we plan for more years not working, we must also plan for more years needing care as we age. Estate planning is not just about making Wills and planning for after death, but also planning for incapacity. Thus, its incumbent upon retirees to also consider who they will appoint in their estate planning documents to manage their finances and make healthcare decisions when they cannot.

Life changes are best managed when we are prepared for those changes!

Adriane S. Grace is an estate planning attorney in Frisco, Texas who regularly assists and counsels clients who want to prepare and plan in the wake of big life changes. If you have questions about estate planning in the Frisco, Prosper, Allen, McKinney, Richardson, Dallas, Carrollton, The Colony, or Denton area, please complete the contact form to request a meeting.