Named in a private agreement or appointed by the court, a fiduciary is someone who assumes responsibility for someone else’s financial affairs when they have died or become incapacitated.
Often a family member or close friend will assume the role. However, if there is no one to take on such an important responsibility, the individual can hire a private or professional fiduciary. But some may wonder what exactly is the difference between a private and a professional fiduciary?
Is there a difference between a private and professional fiduciary?
The terms private fiduciary and professional fiduciary are often used interchangeably, which can cause some confusion. However, a private fiduciary and professional fiduciary are the same thing. A private or professional fiduciary is a professional (often an attorney or CPA) who is privately hired by an individual or their family to serve in a fiduciary capacity, such as an executor, trustee, or agent under a power of attorney.
Professional Fiduciary Credentials and Requirements
Professional fiduciaries are regulated by the Professional Fiduciaries Bureau, an entity within the Department of Consumer Affairs. In the State of California, a professional fiduciary must be licensed by the state, with exceptions for licensed attorneys and CPAs. Before receiving their license, the individual must meet certain education or experience requirements, pass a criminal background check and credit check, participate in continuing education, pass an exam, make annual reports to the state regarding estates under management, and operate under a Professional Fiduciaries Code of Ethics.
However, serving as a fiduciary for someone doesn’t always require a license. According to the Professional Fiduciaries Act of 2006, licensing requirements only apply to fiduciaries who provide fiduciary services to non-family members. Under the law, “you must be licensed if you are acting as a trustee or agent under durable power of attorney for health care or for finances for more than three people or more than three families at the same time who are not related to you.” The Professional Fiduciaries Bureau provides a database that allows consumers to look up and check a fiduciary’s license status.
Related article: 3 Considerations Before Choosing a Private Fiduciary
Benefits of Hiring a Professional Fiduciary
Experienced professional fiduciaries have a much better understanding of estate laws than the typical family member or friend serving as a fiduciary. They fully understand what the role of fiduciary entails and can perform all duties with confidence. They can usually refer you to other reputable professionals and service providers you may need, such as lawyers, appraisers, and real estate agents. Unfortunately, family members and caregivers are the most likely culprits of financial elder abuse. Professional fiduciaries operate under a code of ethics, and they are subjected to state regulations, making abuse and fraud less common.
Related article: 3 Steps to Take Before Hiring a Professional Fiduciary
Acting as a trustee or conservator is a big responsibility since mistakes have a major impact on everyone involved. Ensure every business and financial decision is objective and appropriate with a professional fiduciary.