Chapter 15- Duties of Fiduciaries

When an accountant serves as a trustee of a trust and prepares a federal tax return for the trust, the accountant: A.Is entitled to compensation both for serving as a trustee and for preparing the tax returns. B.Is entitled to compensation for serving as the trustee, but not for preparing the tax returns. C.Is not entitled to compensation for serving as the trustee, but is for preparing the tax returns. D.Is not entitled to any compensation.

A

Who do accountants usually have a fiduciary relationship with?

Accountants typically have a fiduciary duty towards clients who entrust money and important decision making to them. This relationship depends on honesty and loyalty between both parties.

What is a Fiduciary Duty?

Professionals who are expected to perform their responsibilities with the highest degree of honesty and trustworthiness

What are the custody of assets duties?

•Commingling of client assets is not allowed •Assets must be used for their intended purpose •Accounting for these assets must be kept up-to-date •Comply with all relevant laws and regulations •Avoid clients who may discredit your reputation

What do the "Statement on Standards in Personal Financial Planning Services" do?

•Governs CPAs who provide personal financial planning services. •Financial planning services include estate planning, risk management, retirement planning and the sale of financial products (insurance or securities) to their clients.

What are the three roles in trsusts?

1. Settlor- establishes the trust 2. Trustee- takes care of the trust (this is where a CPA might be) 3. Beneficiary- receives benefit of trust

What are the fiduciary legal consequences?

-Fiduciaries have the burden of disproving accusations -Client entitled to any profit disgorgement from a fiduciary's misconduct

Why establish a trust?

-Separate entity from beneficiaries and grantor -Wealth is managed and disbursed per the grantor's wishes after their death -Trustee ensures that the trust's assets are invested wisely and disbursed periodically -Irrevocable trusts helps to minimize estate taxes -Assets are protected from creditors and litigation claims

A married couple came to your office to ask you to help them structure their estate plan. When the wife stepped out of your office for a few minutes, the husband told you that he "hates his wife's son from a previous marriage and wants you to find a way to give him less in the will!" A.Do you owe a duty of confidentiality to the husband? Or may you share his comments with his wife? B.Do you have a conflict of interest in representing both spouses? C.Is it possible for these spouses to consent to your conflict of interest?

A. Can't tell her B. Yes C. No, don't know what they're consenting to

Where does an estate come from and go?

After a person dies, their assets go into an estate which is then distributed to heirs

A CPA is most likely to be held to the standards of a fiduciary when she: A.Performs tax accounting services B.Serves as an investment fund manager C.Performs attest services other than audits D.Performs audits

B

An accountant is most likely to be held to a fiduciary standard when: A.The accountant is involved in preparing corporate filings for submission to the SEC. B.A client is in an especially vulnerable financial position C.A contingent fee arrangement exists between an accountant and a client D.Accountant-client conflicts of interest do not exist or are fully disclosed

B

The duty of impartiality is owed by a trustee to: A.The co-grantors of a trust, such as a married couple that establish a trust for their children B.The income beneficiary and principal beneficiary (remainderman) of a split-interest trust C.The trustee and beneficiary of a spendthrift trust D.An individual who is both the grantor and the beneficiary of a blind trust established for his benefit

B

What is a split-interest trsut?

Income Beneficiary Principle Beneficiary Split who receives what. Keeps the assets safe

What are the types of trusts?

Inter Vivos- Still alive Testamentary- When you die Irrevocable- permanently relinquish control of assets

What are the duties of a trustee?

Loyalty Care Impartiality

What is an accountants role in a trust?

Manage trust assets Prepare trust tax return

DO AUDIT AND TAX ENGAGEMENTS CREATE A FIDUCIARY RELATIONSHIP?

No

What are the independence roles of a trustee?

When you're a trustee for a trust that owns audit client stock -If you have ability to make investment decisions- not independent -If you don't have ability Greater than 10% of trusts assets?-Not independent Less than 10%?- Independent

While acting as a fiduciary, you recommended that your client buy a particular brand of refueling station to charge her new, electric car because she would be able to save 70% of the purchase price of the home refueling station through a combination of tax credits and rebates. You were correct, and the client achieved these savings. However, you did not tell the client that you were receiving a $200 commission from the manufacturer of that particular refueling station brand. Your client now is furious that you received this commission and never told her about it. Do you owe your client $200?

Yes

You are a CPA who was appointed to serve as the trustee of a trust that owns stock issued by a publicly traded company. This company is one of your major audit clients. The trust owns $4 million of stock in your audit client, the trust's net worth is $50 million, and the total market value of the client company is over $1 billion. You have numerous duties as trustee, but the trust agreement clearly prohibits you from making investment decisions. Do you retain the independence to serve as the company's auditor?

Yes- no investment decisions and less than 10%

An accountant audits Weatherford Corporation. This accountant also serves as a trustee of a trust that has an ownership interest in Weatherford. As the trustee, she is empowered to make all investment decisions for the trust. A.Should this accountant be concerned about violating the COPC Independence Rules? B.If the accountant-trustee sells the Weatherford ownership interests on behalf of the trust, will that fix the accountant's independence problem? Could this constitute a breach of fiduciary duty?

a. Yes b. Will solve independence problem but is a breach of fiduciary duty

What are the questions that are asked to determine if a fiduciary relationship exists? No to any of these means you might be in that territory

•Is the client competent to evaluate the advice given to them? •Does the client understand they have ultimate responsibility for decisions? •Is the client informed of all relevant facts to make their own decision? •Does the client consult with other professionals when seeking advice? •Does the client agreement state that a fiduciary relationship does not exist? When the client is vulnerable and reliant on you

What is an accountant's role in an estate?

•Manage Estate Assets & Liabilities •Prepare Estate Balance Sheet & Tax Return