Fiduciary Needs

A fiduciary is a person or other legal entity who acts on behalf of another person or entity to manage assets. The fiduciary must act in good faith according to the best interests of the one he or she represents, known as the principal.

What Does a Fiduciary Do?

A fiduciary usually manages financial tasks for the principal. Sometimes wearing the title of money manager, board member, accountant, or corporate officer, the fiduciary must carry out his or her tasks without any personal profit or gain. Fiduciaries are required to serve with a “prudent person standard of care.” This term dates back to the 1830s and refers to the requirement that fiduciaries serve the best interests of the entity or the beneficiaries.

Where Would You Find a Fiduciary Relationship?

Fiduciaries work in many fields representing people as well as other entities, such as nonprofit organizations and corporations. A few examples of fiduciary relationships are lawyer/client, legal guardian/child, and corporate board members and shareholders. Here are some more specialized relationships.

• In a relationship between fiduciary trustees and beneficiaries (principals), the trustee has the legal ownership of the assets and the authority to handle them accordingly. The principal continues to hold equitable title.
• In a blind trust, the trustee manages assets for the beneficiary, but the principal cannot know how the property is invested. This form of management helps avoid conflicts of interests and is prevalent in politics.
• If a property owner is unable to manage a business because of illness, a fiduciary can take on property rights to act as executor. This same arrangement can be used if a property owner is deceased, but his or her part of a property still needs management.
• An investment fiduciary is a financial professional who manages money for someone else. An example of this is a person who serves on the finance committee of a nonprofit organization has a fiduciary responsibility to that organization. Even if the committee hires someone else to handle the money, the members still must oversee the work.

Who Regulates Fiduciaries?

The Office of the Comptroller of the Currency is the regulatory body of the Department of the Treasury. Each state certifies its fiduciary professionals through examinations, background checks, and continuing education requirements.

Fiduciary relationships are complex. Before you enter into a fiduciary relationship either as a trustee or as a principal, make sure you understand what you are taking on. Consult a knowledgeable and experienced estate planning lawyer who is familiar with the procedures in your jurisdiction.