10 Rules for Being A Successful Fiduciary

Financial Fiduciary

One of the most intimate positions you can have is to be trusted to handle someone else’s finances. This is called being a fiduciary. Generally, the person who names you is known as the Principal, and you are acting as his or her Agent. It is a huge honor, but also a huge responsibility. It can be nerve wracking!

Being an Agent, or a Fiduciary can take several forms, such as:

  • You can serve as a Power of Attorney, meaning that you handle the Principal’s finances because even though he or she is alive, the Principal is unable to manage their own finances without assistance. For instance, you can pay bills, make deposits, and buy or sell property as if you were the Principal.
  • You may be the Trustee of a trust created for the benefit of someone else. In this case, you are responsible for money placed in a trust for the created to benefit a defined set of people or a specific cause.
  • You may be the Guardian of the Property of another person – usually someone who is disabled, and who cannot manage his/her own finances, but whose funds are not in a Trust.
  • Being named as the Executor – carrying out the wishes a testator made known in his or her will.

In each of these cases, you are entrusted with the Principal’s money and you will be held accountable – to the person him or herself, to the heirs, and possibly, to the court. Therefore, you must proceed with extreme caution, and avoid any conflicts of interest with the Principal. You must always keep the Principal’s needs in focus, and act on his or her behalf.

Fiduciaries are held to the highest level of care. They have a duty of loyalty to their wards – this is really a service position. You are providing a service to the Principal, and/or the beneficiary. Here are a few things to keep in mind if you ever serve in a fiduciary capacity.

10 Rules for Being A Successful Fiduciary:

1. It is not your money – remember that! First and foremost, you may only spend the Principal’s money for the benefit of the Principal. Always keep the Principal’s money in a separate account and do NOT mix it with your own. And never think of it as your own – it is NOT YOUR MONEY!

2. Learn the purpose of the account, and use this as your guide. What was the goal of the person who entrusted you with this responsibility? Was it to provide stability for a loved one? Was it to provide for his or her children? Only take actions consistent with the grantor’s goals.

3. Keep careful records. Balance bank statements. Keep receipts. Use a spreadsheet or financial software to keep track of every penny. Remember, you will have to be accountable to someone for every cent you spend on behalf of your ward. You should be able to document each and every transaction you make.

4. Spend money consistently with the Principal’s spending patterns. Look at old bank statements or other records, if they are available. Keep this pattern consistent, where possible. If they didn’t take taxis everywhere, you shouldn’t either. But if they had a history of giving to certain charities, chances are they would want you to do the same.

5. Invest wisely. Be aware of how much there is in the Principal’s account, and how long it needs to last. Do you have to spend the corpus of the funds, or can you just distribute the dividends and interest? Make sure you are not spending the Principal’s funds too quickly.

6. Be aware of how long you will be in this position. Will there be a specific end date, or a murky one – e.g. for the rest of the beneficiary’s life? Are you prepared to remain in this position of responsibility? If not, is there a provision for you to name your successor? Make sure you understand when and how you will step down at the end.

7. Be a good citizen. This might be obvious, but file all tax returns on time. Make timely payments to every vendor, on all taxes and fees due. File reports to the court if required. Honor deadlines.

8. Hire people who understand your fiduciary duties. If you have to hire people to help you, e.g. accountants, lawyers, etc., hire people who understand your fiduciary duties, and who will honor that commitment. Find people who are unfailingly honest and modest in their fees.

9. Be self aware of your own limitations. If you can’t do the job, don’t do it. It IS a tremendous responsibility. Help to find someone else who has the resources to fulfill this commitment.

10. Be impeccably honest. Be dignified. Be elegant. Oh – and did I say to remember that this is not your money??

These simple rules will help you honor the trust that has been given to you.

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About Joy Rosenthal

Joy S. Rosenthal, Esq. is an experienced, caring New York City-based Family and Divorce Professional Mediator and Attorney. Joy founded Rosenthal Law & Mediation in 2006 to use both law and mediation as a tool to help families as they move through transitions. Her services include Divorce Mediation and Elder (adult sibling) Mediation, Adoptions, Collaborative Divorce, and representation in custody and visitation disputes. She also offers wills and estate planning. Visit Joy at www.joyrosenthal.com.

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