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What is the responsibility of a fiduciary?

"A fiduciary is someone who has the responsibility of taking care of assets or money for another person or group of people. Any time money and other people are involved, you have a serious responsibility."

A corn field is in the foreground of a farm, with the sun coming through dark clouds.
The fiduciary in a trust involved in a farm estate plan has an important and sometimes difficult job.
Hailey Walmsley / Grand Vale Creative LLC
We are part of The Trust Project.

A fiduciary is someone who has the responsibility of taking care of assets or money for another person or group of people. Any time money and other people are involved, you have a serious responsibility.

With your own personal checking account, the decisions that you make are relatively simple because they just affect you. But what if you are the fiduciary of something that involves other people? The entire group is expecting results from you.

How does that apply to estate planning? What if you are the trustee of a trust or a financial power of attorney for another person? As a trustee you can not just worried about what is good for yourself; you have to act on behalf of others and what is best for all the beneficiaries.

For example, let’s say your dad passes away and a Testamentary Trust is established in his will to hold some of his assets. Mom is supposed to get the income from those assets and all the kids are supposed to get the remainder when she passes away. If some of the assets that go into that trust are land then someone will likely be renting that land, taxes are being paid, and the net income is paid out to mom. Who gets to rent the land and what is the rate? What if several children want to farm? The rent range in the Midwest could range from $200-$400 or more per acre. How will that be decided. This could become a real issue.

What if an investment is needed in the trust? As a trustee you would need to look at the objectives of the trust and the interests of the beneficiaries. That may be to provide income to the surviving spouse and yet preserve the principal for the beneficiaries.

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What if there is an irrevocable trust owning life insurance? Sometimes the trust is supposed to benefit all the
children or maybe to equalize things for the non-farming children. Either way, the concept may be good but the implementation is often flawed. Is there a proper trust document? Tax ID number, Crummey letters (which are letters informing beneficiaries about assets added to a trust and their rights to withdraw them) and a guaranteed insurance policy?

A saw a case that had $1 million of insurance in the trust. The farming son was the trustee, his two non-farming siblings were the beneficiaries. Dad and mom were healthy at age 65. The illustration indicated that the policy could lapse and be worth $0 in 11 years. Statistically there is a good chance that one of the parents will live until at least 85. Would you like to be responsible for that ticking time bomb? Some may downplay that concern, but the only one who has signed their name is the trustee. The insurance agent and attorney are likely not responsible, just the trustee. Can you imagine some upset siblings?

Having an institution for a trustee may or may not be the solution. Often times a well laid out plan may not need an institution that charges a fee while other times it may be worth it.

The bottom line is that if you are a fiduciary as a trustee or power of attorney you have a job to do. You are taking care of something for someone else. The best case is that there are instructions given for you to follow but either way you are to act prudently on behalf of everyone involved.

If you are a fiduciary your responsibilities have never been more critical. Why? Because the beneficiaries have never been more demanding and farm assets, investments and insurance can have a lot of value but can also be confusing in a variety of ways.

Myron Friesen is the co-owner of Farm Financial Strategies Inc. in Osage, Iowa. He can be contacted at 866-524-3636 or friesen@farmestate.com.

Related Topics: MYRON FRIESENFARM FINANCES
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