What Is A Fiduciary and What Is Their Role?
A fiduciary is an entity or a person that holds assets or information for you. The entity may be a corporation, or a credit union, or a bank. The fiduciary acts as your agent-in-trust. As the customer (or member or stockholder), you are the principal, and the fiduciary acts on your behalf.
The asset for which the fiduciary is responsible could be a house or another piece of property. It could be securities or investment assets or cash.
There are government rules regarding fiduciaries. If you are the principal, your fiduciary owes you obedience, diligence, full disclosure, and the duty of loyalty. The fiduciary also owes you full accounting for all monies handed over. By law, the fiduciary must act with utmost good faith in maintaining and preserving the assets in question. The fiduciary cannot use his or her trusted position to achieve wealth, if it is at the expense of the principal. These laws are built to ensure the trustworthiness of the fiduciary, and to prevent financial malfeasance.
Essentially, the fiduciary is legally obligated to act in an honest manner and provide the “highest standard of care” for the principal — the person he or she represents.
Fiduciary and Estate Planning
In estate planning, you may be dealing with a wide array of fiduciaries. Your attorney, your accountant, your mortgage broker, your financial adviser, your real estate agent — all may act in some fiduciary role, and all must act with your best interests at heart.
These laws governing fiduciaries are in place to protect you. In probate, estate planning, and in all other situations regarding your trust and estate, these fiduciaries are bound by their financial responsibilities to you.
Your trustee is a fiduciary that manages the assets that you have put into your living trust. This trustee may be a bank or a trust company, or it could be an individual. In many cases, people act as their own trustees, but have a successor trustee named in case they become unable to manage their own affairs — in the event of a debilitating accident, for example.
If you die, your trustee has a fiduciary responsibility to your beneficiaries. That successor trustee is bound by the same legal obligations with regards to the people named in your trust. The same protections offered to you during your lifetime are offered to those to whom you bequeath your assets.
If you have children, you will most likely want to include them in your Will and estate planning. If your children are minors, you will name a guardian, who would take over care of your children in the event of your demise. If you die, this guardian assumes a fiduciary responsibility as well. Their fiduciary responsibility is to your children.
If you create an advanced medical directive — a Living Will and Healthcare Power of Attorney in case you become medically incapacitated — then the person or people named to represent you is a fiduciary. This person will act on your behalf, and this person is bound by fiduciary duty. In this case, the fiduciary cannot be a health care provider or an institution. The fiduciary named in an advanced medical directive must be a person.
In all of these situations, the people with fiduciary duty can be held liable if they betray the trust you legally place in them. This is called Breach of Fiduciary Duty.
Your estate’s executor can be found civilly liable, and financially liable, if he or she breaches their duty. Attorneys are disbarred for breaches. If any of them take actions that are not in keeping with your intentions or best interests, these fiduciaries can all face stiff penalties.