When someone talks about entrusting another person with managing their finances or assets, the term “fiduciary” often comes up. But what exactly is a fiduciary, and what does it mean if you are asked to become one? In essence, a fiduciary is someone who is legally bound to act in another person’s best financial interest. This responsibility arises in various situations, often when someone is unable to manage their affairs themselves, or needs expert help.
Fiduciary duties are most commonly established through legal documents like a power of attorney (POA). For example, if you agree to be named as an agent under a power of attorney for a family member, you become their fiduciary. This legal role empowers you to make financial decisions on their behalf, but it also obligates you to act solely for their benefit, not your own.
Beyond powers of attorney, fiduciary relationships exist in many other contexts. Guardians or conservators appointed by a court to manage property for incapacitated individuals are fiduciaries. Trustees managing assets within a trust are fiduciaries to the beneficiaries. Even representative payees for Social Security benefits and VA fiduciaries who manage benefits for veterans are all operating under fiduciary duties.
Regardless of the specific title, all fiduciaries share fundamental responsibilities, primarily centered around acting in the best interest of the person they represent. These core duties include:
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Acting Exclusively in Their Best Interest: This is the cornerstone of fiduciary duty. Every decision you make as a fiduciary must prioritize the well-being and financial interests of the person you are representing. Personal gain or the interests of others should never influence your actions.
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Managing Finances and Property Prudently: Fiduciaries are entrusted with significant financial responsibilities. This necessitates careful and diligent management of money and property. This can involve a range of tasks such as paying bills, overseeing bank accounts, making necessary purchases, managing investments, handling taxes, collecting income, and securing insurance. Every action should be taken with thoughtfulness and care.
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Maintaining Separation of Assets: It is crucial to keep the money and property of the person you are representing completely separate from your own and anyone else’s. Mixing funds can lead to serious complications, including legal repercussions and scrutiny from agencies like adult protective services or even law enforcement. Clear and distinct financial boundaries are essential.
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Keeping Meticulous Records: Transparency and accountability are paramount in a fiduciary role. You are required to maintain accurate and comprehensive records of all financial transactions and property management activities. Failure to keep proper records can result in legal penalties and undermine the trust placed in you.
Understanding these duties is crucial if you are considering becoming a fiduciary. It is a significant responsibility that demands integrity, diligence, and a commitment to acting ethically and legally in someone else’s best interest. Resources are available to help guide you in managing someone else’s money responsibly, ensuring you fulfill your fiduciary duties effectively.
