Professional fiduciaries play a vital role in managing the affairs of individuals who may be unable to do it themselves. Whether it’s overseeing an estate, trust, or guardianship, fiduciaries must uphold the highest standards of care and act in the best interest of their clients. One critical aspect of the fiduciary role is ensuring compliance with IRS regulations, including the timely filing of Form 56: Notice Concerning Fiduciary Relationship.
Below we’ll delve into the intricacies of Form 56, why it matters for professional fiduciaries, and provide a step-by-step guide to navigating this essential document.
Understanding the Basics of Form 56
Form 56 serves as a formal notification to the IRS that you are acting in a fiduciary capacity, whether as trustee, executor, guardian or another similar role. By submitting this form, you are providing the IRS with important information about the trust or estate for which you are responsible, including details about the beneficiaries and the nature of the assets held.
One primary reason for submitting Form 56 is to establish clear communication with the IRS regarding your fiduciary responsibilities. This helps prevent any misunderstanding or potential issues related to tax reporting and compliance. By notifying the IRS of the fiduciary relationship, you are demonstrating transparency and accountability in your role as fiduciary.
Step-by-Step Guide to Completing Form 56
In theory, completing Form 56 should be a minor blip in your jam-packed duties as fiduciary. Given that these fields are being submitted to the Department of Treasury, you’ll want to make sure you carefully and accurately complete this document.
First, to find the downloadable version of Form 56, visit IRS.gov or click here. The IRS has also provided detailed instructions on each of the different parts of the form. Remember, if there is more than one fiduciary involved in the relationship, each fiduciary must submit their own Form 56.
Part I
Complete Part I with the requested identification information of both yourself and the person for whom you are acting as a fiduciary. This includes your name, your address, your social security number, along with their name, address, social security number. If this is a decedent estate, you will need to enter the SSN or individual taxpayer identification number (ITIN) shown on the final Form 1040 in the respective field.
Under Section A. Authority, the fiduciary is tasked with checking applicable authority within the fiduciary relationship, like whether you were court appointed as guardian or conservator, fiduciary of interest estate, or assigned for the benefit of creditors.
Section B. Nature of Liability and Tax Notices is specific to taxes. This is where you will select the appropriate tax forms you will be filing under your role as fiduciary. This includes income tax, gift tax, estate tax, excise tax, and more. If your authority as fiduciary does not cover all years or tax periods, you have the option of selecting a box and listing the specific time periods within your authority.
Part II
Just as you would file Form 56 to announce the start of a client-fiduciary relationship, you must also file Form 56 when terminating a client-fiduciary relationship.
Complete Section A of Part II only if you are revoking or terminating a prior notice concerning a fiduciary relationship. Be sure to enter the accurate date the fiduciary relationship ended, along with the reason for termination. As per the IRS’ guidance, completing Section B or C of Part II does not relieve any new or interim fiduciary of the requirement to file a Form 56.
Part III
Part III will only need to be completed if the fiduciary has been appointed by a court or other governmental unit, other than a bankruptcy proceeding. If the fiduciary has been appointed as per a court order, you must complete the name of the court, address information, docket number and attach any additional court information for future proceedings.
Submission Process
On average, completing Form 56 should take approximately two hours.
Before sending, remember to attach any supporting documents that establish your fiduciary relationship, such as copies of a will, trust document, or court order. Once you have completed the form and are ready to submit, mail the form and its contents to the Internal Revenue Service Center where the person for whom you are acting on behalf is required to file tax returns.
Unfortunately, the IRS cannot accept this form electronically.
Where you should mail your Form 56 form will depend on where the person for whom you are acting is required to file tax returns. For California Fiduciaries, you should definitely check with your accountant, but the address you should use is probably going to be:
Department of Treasury
Internal Revenue Service
Ogden, UT 84201-0002
As always, refer to your tax accountant if you have any questions.
Failure to File Form 56
Failing to file Form 56 can have serious legal and financial implications. Therefore, it’s crucial to understand who needs to file, when it should be filed, and the key components of the form.
The IRS may impose penalties and fines for failure to comply with the filing requirements. These can vary depending on the specifics of the case and the length of delay. Proactively communicating with the IRS to explain the oversight and demonstrate a willingness to comply can sometimes result in reduced penalties or more favorable outcomes.
The Essential Responsibility of a Fiduciary
At Prudent Investors, we understand the importance of fulfilling fiduciary responsibilities with diligence and care. Our team of advisors can assist you in navigating the complexities of Form 56 and ensure that your notice concerning fiduciary relationship is submitted accurately and on time. We are dedicated to supporting fiduciaries in meeting their obligations and safeguarding the interests of beneficiaries.
Contact us today to learn more about how we can assist you in managing your fiduciary responsibilities with confidence and expertise.
Investment advice through Prudent Investors, an SEC-registered investment advisor. This blog is general communication being provided for informational purposes only. This information is in no way a solicitation or offer to sell securities or investment advisory services. It is educational in nature and not to be taken as advice or a recommendation for any specific investment product or investment strategy. This does not contain sufficient information to support an investment decision. Any investment or investment strategy mentioned may not be suitable for all investors or in their best interest. Statistical information, quotes, charts, references to articles or any other quoted statement or statements regarding market or other financial information is obtained from sources which we believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. All rights are reserved. No part of this blog including text, graphics, et al, may be reproduced or copied in any format, electronic, print, et al, without written consent from Prudent Investors. Prudent Investors does not provide legal or tax advice. Please be advised to consult with your investment advisor, attorney or tax professional before making any investment decisions.
