Form 56, Notice Concerning Fiduciary Relationship

Acting in a fiduciary capacity expands your ethical responsibilities to clients, but it can also add to your paperwork. One document you’ll need to familiarize yourself with is IRS Form 56, Notice Concerning Fiduciary Relationship. It’s important to know when this form is required and what information to include.

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Understanding IRS Form 56

Form 56 allows advisors to notify the IRS of the creation or termination of a fiduciary relationship under section 6903. It also provides the qualification for a fiduciary relationship under section 6036.

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.” 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.

When Is Form 56 Required?

Form 56 is mandatory when an individual or entity assumes a fiduciary role on behalf of someone else to manage their tax situation. Here are some common examples of when the IRS requires this form:

Parents name their oldest child as the executor of their will. Once they pass away, the oldest child must complete Form 56 to let the IRS know who is handling the parents’ estate and final tax filing.
A spouse applies for conservatorship after their wife/husband is diagnosed with a cognitive disease that affects their ability to care for themselves. As conservator, the spouse would be responsible for filing Form 56.
A debtor files for bankruptcy protection. The bankruptcy trustee must file Form 56 to let the IRS know they’re qualified to manage the debtor’s assets during the proceedings.

Do financial advisors need to fill out Form 56? The IRS does not specifically mention financial advisors when naming examples of fiduciaries. However, if you’re entering into a fiduciary relationship with a client or exiting one, this form is required.

Form 56 Fiduciary Instructions

A couple consult with their advisor on whether they need to file Form 56.

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:

Court appointment of testate estate (valid will exists)
Court appointment of intestate estate (no valid will exists)
Court appointment as guardian or conservator
Fiduciary of intestate estate
Valid trust instrument and amendments
Bankruptcy or assignment for the benefit of creditors
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.

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

Section A must be completed if you’re revoking or terminating in entirety all prior notices and specify the reason why.
Section B must be completed if you’re revoking an earlier notice for specific tax matters only.
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

Excepting 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. You must submit the form by mail.

If you’re filing Form 56 in a fiduciary advisor capacity, you’ll mail it to the IRS Service Center where the person for whom you’re acting is required to file their tax returns. The IRS maintains a list of service centers online.

Frequently Asked Questions (FAQs)

Can You Submit Form 56 Electronically?

The IRS doesn’t accept Form 56 filings online. You’ll need to mail the form to the IRS Service Center that would accept tax returns for the person on whose behalf you’re acting as a fiduciary.

Is There a Penalty for Filing Form 56 Late?

The IRS could impose penalties on fiduciaries who do not file Form 56 promptly. For that reason, it’s important to complete and submit the form as soon as possible following the creation or termination of a fiduciary relationship.

Are All Financial Advisors Fiduciaries?

Financial advisors are not automatically held to a fiduciary standard. Becoming a fiduciary typically means acquiring certain professional certifications or designations first. Examples of fiduciary financial advisors include registered investment advisors (RIAs), Certified Financial Planners™ (CFPs®) and Chartered Financial Analysts (CFAs). Fiduciaries are bound by an ethical standard that requires them to act in a client’s best interests at all times.

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.

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