I Am a Fiduciary. What Do I Do?

Congratulations! You just got pegged to take care of someone or someone’s stuff. A fiduciary is a person in a position of great trust and responsibility. You are an agent, an executor or trustee. You probably have a family member who thinks you are the most responsible, able and/or trustworthy person they know. This is a huge honor. It is also a gigantic dose of work and responsibility. And most likely, you get to take all this work and responsibility for no pay.

Most people get no training when they are appointed to the role of fiduciary. There are several key duties. When performing these duties the law requires you to be perfect, not good enough, not close, perfect.

Your Duties As a Fiduciary

Communicate

The law requires you to keep your principal (the person who appointed you) informed about what you are doing or have done–unless the principal is no longer mentally competent. You may have a duty to keep someone else informed. Many of the biggest fights occur because the agent fails to keep the principal informed. Sometimes the persons who want information do not have the legal right to information. You need to speak with your attorney before the problems happen.

Record Keeping

Good communication is easier when you have the information needed. Keep ALL of the receipts on items purchased. Keep all tax returns; keep all contracts. Set up and maintain a bookkeeping system to record all receipts and expenditures. If necessary hire an accountant. Heck, hire an accountant even if not necessary. Your life will be far easier and the accountant can help you avoid income tax issues. Keep these records until your principal has been dead at least four years. Most fights in my experience occur after Mom or Dad died.

Best Interest

Everything you do in your role as a fiduciary must be in the principal’s best interest. Unless there is specific written authorization you cannot even perform a transaction in which you are involved individually. By this I mean that you cannot sell to or buy assets from your principal. Yes, Mom or Dad can sell or give you a car while competent, but how do you prove the validity of the sale after she dies and your brother sues? You do it with specific written permission and you make sure Mom or Dad is still competent.

Competence

You are required to know what you are doing and do it well. If you do not know how to do something you need to hire the expert so that it gets done correctly. You have a right of reimbursement. This means you can pay for your principal’s car repair from their money or to reimburse yourself if you pay for it with your own money.

You need to hire doctors for medical care, accountants for tax returns, and lawyers for legal advice. It is better to spend a modest amount planning and doing things correctly than to spend large amounts fixing problems.

Prudence

This duty is closely related to competence. What you do should be well thought out. This is one reason why you need to hire the proper experts: plumbers, electricians, nurses, doctors, accountants, financial planners/investment advisors and lawyers when useful. If you have the skills and training to do something you are allowed to do so. If you do not have education and ability to do something important then hire it done. If there is a lack of money you probably have a duty to apply for government benefits to care for your principal unless you can afford to pay from your own funds. If you use your own money keep perfect records if you have any desire to be repaid someday.

No Commingling

Related to the issues above is do not mix your money or assets and your principal’s money and assets. If you put your Mother’s money in your bank account there is a legal presumption that it is ALL your mother’s money. You have to prove some of it is yours. Same thing goes in reverse, if you put money into Mom’s bank account there is a presumption it is Mom’s until you prove you put your money into the account. Your word will not be enough if anyone disagrees. You never know who will be looking over your shoulder someday. You may have Texas Adult Protective Services, a District Attorney or a brother investigating all transactions. The quality of your records will matter.

For More Legal Guidance on Texas Fiduciary Law

This article is not meant to be a complete or exhaustive list of your duties. The Texas Statutory Power of Attorney has a “short” two page summary of your duties. If you are a Trustee the Trust document almost certainly has a long list of powers and duties you need to read and follow. While the law in other states is probably very similar all statements are limited to Texas law. If I can help please call or email me.

Posted in Estate Planning

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