Form 56, Notice Concerning Fiduciary Relationship

Acting in a fiduciary capacity expands your ethical responsibilities to clients, as you must always act in their best interests. Taking on this role can also add to your paperwork, which may already be substantial if you’re a registered investment advisor (RIA). One document you’ll need to familiarize yourself with is IRS Form 56, Notice Concerning Fiduciary Relationship.¹ It’s important to know when this form is required and what information to include.

Are you looking to expand the marketing of your financial advisor practice? Try SmartAsset AMP, a holistic client prospecting and marketing automation platform.

Understanding IRS Form 56

Form 56 is the document advisors use to notify the IRS of the creation or termination of a fiduciary relationship under section 6903 of the Internal Revenue Code (IRC). It also relates to the reporting of fiduciary relationships under section 6036. This form is required when a fiduciary relationship is created or terminated for the specific purpose of one individual or entity managing the tax affairs of another.

The IRS defines a fiduciary as “any person in a position of confidence acting on behalf of any other person … who assumes the powers, rights, duties, and privileges of the person or entity on whose behalf he or she is acting.” ² Examples of fiduciaries under this definition include conservators, executors and trustees.

Form 56 is designed to ensure transparent and accurate communication between the fiduciary in question and the IRS. Failing to file this form on time could limit your ability to take certain actions on behalf of clients in tax-related matters.

Client Acquisition Simplified: For RIAs

• Ideal for RIAs looking to scale.
• Validated referrals to help build your pipeline efficiently.
• Save time + optimize your close rate with high-touch, pre-built campaigns.

CFP®, CEO

Joe Anderson

Pure Financial Advisors

We have seen a remarkable return on investment and comparatively low client acquisition costs even as we’ve multiplied our spend over the years.

Pure Financial Advisors reports $1B in new AUM from SmartAsset investor referrals.

Target New Clients This Year

I am a registered fiduciary*

Book Your Free DemoNot sure? Learn more about AMP.

When Is Form 56 Required?

Do financial advisors need to fill out Form 56? Not if your services are limited to providing tax planning advice to clients. However, if you’re entering into a fiduciary relationship with a client for the specific purpose of managing their tax affairs in a situation involving an executorship, conservatorship or bankruptcy, this form is required.

If you plan to act as an authorized representative on behalf of a client in a tax matter, such as an audit, a separate form is required. You’ll need to complete and submit Form 2848, Power of Attorney and Declaration of Representative.

Form 56 Fiduciary Instructions

The fiduciary, not the person on whose behalf they are acting, must complete Form 56 and submit it to the IRS. Here’s an overview of what you’ll need to provide if you’re expected to submit this form:

Part I: Identification

The first part of Form 56 is used to identify the fiduciary and the person on whose behalf they are acting. Here, you’ll need to fill out the following:

• Name and address of the person for whom you’re acting as a fiduciary
• Their Social Security Number or employer identification number (EIN)
• Your name and address

Section A: Authority

In the next section, you’ll tell the IRS under what authority you’re acting as a fiduciary. You’ll check all of the applicable boxes from the following list:

1. Court appointment of testate estate (valid will exists)
2. Court appointment of intestate estate (no valid will exists)
3. Court appointment as guardian or conservator
4. Fiduciary of intestate estate
5. Valid trust instrument and amendments
6. Bankruptcy or assignment for the benefit of creditors
7. Other (you’ll need to briefly describe the circumstances)

If you checked the first, second or fourth boxes, you’ll enter the person’s date of death on line 2a. If you checked the third, fifth or sixth boxes, you’ll need to enter the date of appointment, taking office or assignment/transfer of assets.

Section B: Nature of Liability and Tax Notices

This section of Form 56 is used to share information about the type of assets a fiduciary will manage on behalf of someone else. There are three parts to complete.

1. Type of taxes (check all that apply from income, gift, estate, generation-skipping transfer, employment, excise tax or other)
2. Federal tax form number (check all that apply)

The third part directs you to check the box if your authority as a fiduciary doesn’t cover all years or tax periods. If that’s the case, you can fill in the years or periods covered by your authority.

Part II: Revocation or Termination of Notice

Part II is used to notify the IRS that you’re ending or revoking a notice of fiduciary relationship. There are three parts.

1. Section A must be completed if you’re revoking or terminating all prior notices and specify the reason why.
2. Section B must be completed if you’re revoking an earlier notice for specific tax matters only.
3. Section C allows you to tell the IRS if a new fiduciary has been or will be substituted, and who the new fiduciary is.

Part III: Court and Administrative Proceedings

If there are any court or administrative proceedings relating to fiduciary actions the IRS needs to be aware of, you’ll include them here. Specifically, you’ll need to share:

• The name of the court
• The address of the court
• The date, time and place that proceedings occurred or will occur

Part IV: Signature

In the last section, you’ll sign the document and include your title if applicable. You’ll also add the date you signed Form 56. Your signature tells the IRS that the information provided is accurate and truthful.

When and Where to File Form 56

Except for fiduciaries who are assignees for the benefit of creditors, you have 90 days to file the form from the date the fiduciary relationship is established. If you’re filing Form 56 as a fiduciary advisor, you’ll mail it to the IRS Service Center where the person for whom you’re acting is required to file their tax returns, or submit it electronically. The IRS maintains a list of service centers online to help you find the correct one for form submissions.

Frequently Asked Questions (FAQs)

Bottom Line

Form 56 is an important document that can’t be overlooked when entering into a fiduciary relationship or ending one. Knowing which forms you’re required to file with the IRS can help you avoid compliance missteps.

Tips for Growing Your Advisory Business

• A solid marketing strategy is essential if you’re hoping to expand your client base. If you’d like to simplify your marketing efforts, partnering with a professional platform could make sense. SmartAsset AMP is designed to help advisors like you generate high-quality leads while leaving you free to serve the clients you already have. Schedule a demo to learn how to use it to grow your business.
• Offering estate planning or tax planning services to your clients can be an effective way to increase sales and attract new clients to your business. If you’re thinking of branching out, it’s helpful to have the right tools in your RIA tech stack. Comparing estate and tax planning software solutions can help you find the products that are best suited to your firm’s goals and your clients’ needs.

Photo credit: ©iStock.com/Nutthaseth Vanchaichana, ©iStock.com/PeopleImages, ©iStock.com/Jacob Wackerhausen