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Understanding the Duties of a Fiduciary in California

Torrance Probate and Estate Planning Attorney

Understanding the Duties of a Fiduciary in California

Trusts, conservatorships and guardianships all share a common characteristic: They are managed by a person who owes a fiduciary duty to the beneficiary (or beneficiaries) to use due care on overseeing the assets that comprise the entity’s (for the sake of simplicity and brevity, the term “trust” will be used in what follows to include any and all entities that possess assets for the benefit of third persons). The person who is chosen to manage one of these entities is generally referred to as a “fiduciary.”

Understanding fiduciary duty

Fiduciary duty is a creature of the English common law that was imported into American estate law before the nation was founded. The duty owed by a fiduciary has been carefully reviewed, considered, and defined by courts in the intervening 250 years. Therefore, the nature of fiduciary duty is well-settled. A fiduciary owes an absolute duty of what courts call “due care” to the beneficiaries of the entity that has been created to hold certain assets for third parties known as beneficiaries. The fiduciary must accord the interests of the trust and the beneficiaries the highest care in making decisions regarding the trust assets. The fiduciary should not make risky investments with trust assets or invest those assets in an entity in which the fiduciary has a financial interest.

Due care has been described as the effort that would be made by an ordinarily prudent person, taking all circumstances into account, to avoid any action that might harm or reduce the value of the assets.

Who can be a fiduciary?

Any person of sound mind and reasonable intellect can be a trustee. If a person is nominated to serve as a trustee by two or more persons who are not relatives, the person must obtain a license from the California Bureau of Professional Fiduciaries. Certain professionals, such as lawyers and CPA, are exempt from this requirement. In many cases, a person setting up a trust will choose either a trusted family member or an attorney to serve as trustee. A third option is hiring what is known as a professional fiduciary. Professional trustees can be banks, other financial institutions, or any institution with experience in handling monetary transactions. In any of these cases, the person or organization chosen should have demonstrated ability to safely manage large amounts of varied assets. Usually, the lawyer who helped set up the fiduciary entity – or any competent estate planning attorney – is a useful source of advice on picking a competent trustee.