What is a fiduciary? Since you have been named to manage money or property for someone else, you are a fiduciary. The law requires you to manage a person’s money and property for his/her benefit, not yours. It does not matter if you are managing a lot of money or a little. It does not matter if you are a family member or not. The role of a fiduciary carries with it legal responsibilities. When you act as a fiduciary for a person, you have four basic duties that you must keep in mind:
- Act only in a person’s best interest.
- Manage a person’s money and property carefully.
- Keep a person’s money and property separate from yours.
- Keep good records.
As a fiduciary, you must be trustworthy, honest, and act in good faith. If you do not meet these standards, you could be removed as a fiduciary, sued, or have to repay money. It is even possible that the police could investigate you and you could go to jail. That’s why it’s always important to remember: It’s not your money!
What is a power of attorney? A power of attorney is a legal document. A person made a power of attorney to give you legal authority to make decisions about his/her money or property so that you can make decisions for him/her if he/she is sick or injured. Under a power of attorney, a person is called the principal. You are called the agent.
Can the principal still manage his/her money and property after signing a power of attorney? Yes, as long as he/she is still able to make decisions.
Can a power of attorney be changed or revoked? The principal can take away (or revoke) our authority to act as his/her agent at any time if she wants to and is still able to make decisions. If he/she does take away your authority as his/her agent, you must stop making decisions for him/her. The principal should tell any people or businesses you were dealing with about his/her decision to take away your authority.
What if you think the change was the result of fraud or abuse? If you think the principal does not understand the decision he/she made to remove your authority and is being abused or exploited by someone else, talk to a trusted family member; a lawyer; or an official from adult protective services, or the police.
When do your responsibilities end? If the principal revokes your authority, your responsibilities end. In addition, your authority ends when he/she dies. Promptly notify his/her bank or other businesses with which you interacted as his/her agent. Even if you can easily pay some of his/her outstanding bills, you will no longer have the authority to do so. If you are married to the principal, your authority to act as his/her agent may end if you get divorced or legally separated. If a court names a guardian of property or conservator to act for her, your authority as agent may end. The power of attorney document or state laws govern these situations.
What happens if you can no longer serve as agent? If you are not able to act as the principal’s agent and he/she cannot name someone else to act for him/her, tell a trusted family member or a government agency such as adult protective services. If you cannot act as his/her fiduciary, he/she will need someone else to help him/her.
Four basic duties of a fiduciary:
Duty 1 – Act only in the principal’s best interest – Because you are dealing with the principal’s money and property, your duty is to make decisions that are best for him/her. This means you must ignore your own interests and needs, or the interests and needs of other people.
- Read the power of attorney and do what it says. Your authority is strictly limited to what the document and state law allow. Follow the principal’s directions in the document, even if you have the best intentions in doing something different.
- Understand when the power of attorney becomes effective. It may be right away or only when the principal can no longer make his/her own decisions. Check to see if the document says how you will know when the principal can no longer make his/her own decisions.
- As much as possible, involve the principal in decisions. Many things can affect your decisions about the principal’s money and property. For example, you might feel pressure from others. The principal’s abilities to make decisions might change from time to time. Even after it is clear that you must make decisions for the principal, ask him/her what he/she wants if he/she can communicate. If he/she can’t say what he/she wants, try to find out what he/she would have wanted. Look at past decisions, actions, and statements. Ask people who care about the principal what they think he/she would have wanted. Make the decisions you think the principal would have wanted, unless doing so would harm him/her. Put his/her well-being above saving money for others who may inherit his/her money and property. Make sure he/she is safe and comfortable, and his/her needs are met.
- Avoid conflicts of interest. A conflict of interest happens if you make a decision about the principal’s property that may benefit someone else at the principal’s expense. As a fiduciary, you have strict duty to avoid conflicts of interest – or even the appearance of a conflict of interest.
- Don’t borrow, loan, or give the principal’s money to yourself or others.Even if the power of attorney or state law clearly allows gifts to you or others, be very careful to avoid conflicts of interest. Make sure that any gifts do not increase or complicate the principal’s taxes or change his/her plans to give away her property when she dies. Any gifts or loans should be in line with what the principal would have wanted. For example, if the principal gave money every year to a charity, the power of attorney may allow you to continue doing that.
- Avoid changing the principal’s plans for giving away his/her money or property when he/she dies. There may be rare situations in which changing the principal’s plans would be in his/her best interest. But you should get legal advice to make sure that the power of attorney or state law allows that.
- Don’t pay yourself for the time you spend acting as the principal’s agent unless the power of attorney or state law allows it. If you are allowed to pay yourself, you need to show that your fee is reasonable. Carefully document how much time you spend and what you do.
Duty 2 – Manage the principal’s money and property carefully – As the principal’s agent, you might pay bills, oversee bank accounts, and pay for things he/she needs. You might also make investments, pay taxes, collect rent or unpaid debts, get insurance if needed, and do other things written in the power of attorney. You have a duty to manage the principal’s money and property very carefully. Use good judgment and common sense. As a fiduciary, you must be even more careful with the principal’s money than you might be with your own! Follow these guidelines to help you make careful decisions:
- List the principal’s money, property, and debts. To make careful decisions, you need to know what the principal owns and owes. Your list might include: Checking and savings accounts; Cash; Pension, retirement, annuity, rental, public benefit, or other income; Real estate; Cars and other vehicles; Insurance policies; Trusts for which the principal is a beneficiary; Stocks and bonds; Jewelry, furniture, and any other items of value; and Unpaid credit card bills and other outstanding loans.
- Protect the principal’s property. Keep his/her money and property safe. You may need to put valuable items in safe deposit boxes, change locks on property, and make sure his/her home is insured. Make sure bank accounts earn interest if possible and how low or no fees. Review bank and other financial statements promptly. If the principal owns any real estate, keep it in good condition.
- Invest carefully. If you are making investment decisions for the principal, talk to a financial professional. The Securities and Exchange Commission (SEC) provides tips on choosing a financial professional. Discuss choices and goals for investing based on the principal’s needs and values.
- Pay bills and taxes on time.
- Cancel any insurance policies that the principal does not need.
- Collect debts. Find out if anyone owes the principal money and try to collect it.
- Take steps to have the power of attorney accepted. Sometimes banks or other businesses won’t do what you, acting as the principal’s agent, want them to do. A bank may refuse to accept the power of attorney and want the principal to sign its own form. This is a problem if the principal has lost the ability to act for herself. As soon as you need to act as the principal’s agent, contact any businesses (such as banks) or people he/she deals with and give them copies of the power of attorney. Never give away the original document. You can get certified copies of the original document. If someone will not accept your authority as agent, talk to a supervisor. If they still won’t accept it, talk to a lawyer. State law may require the business or person to accept the power of attorney.
Duty 3 – Keep the principal’s money and property separate – Never mix the principal’s money or property with your own or someone else’s. Mixing money or property makes it unclear who owns what. Confused records can get you in trouble with the principal’s family and also with government agencies such as adult protective services and the police. Follow these guidelines:
- Separate means separate. Never deposit the principal’s money or property into your own or someone else’s bank account or investment account.
- Avoid joint accounts. If the principal already has money or property in a joint account with you or someone else, get legal advice before making any change.
- Keep title to the principal’s money and property in his/her own name. This is so other people can see right away that the money and property is the principal’s and not yours.
- Know how to sign as agent. Sign all checks and other documents relating to the principal’s money or property to show that you are the principal’s agent. For example, you might sign “John Doe, as agent for Jane Doe.” Never just sign “Jane Doe.”
Duty 4 – Keep good records – You must keep true and complete records of the principal’s money and property. The power of attorney or state law may say that someone else can review your records to check up on you. Unless the power of attorney or state law says you can’t share your records, you may want to let another family member or friend of the principal see them as a precaution. Practice good recordkeeping habits:
- Keep a detailed list of everything that you receive or spend for the principal. Records should include amount of checks written or deposited, dates, reasons, names of people or companies involved, and other important information.
- Keep receipts and notes, even for small expenses. For example, write “$50, groceries, ABC Grocery Store, May 2” in your records soon after you spend the money.
- Avoid paying in cash. Try not to pay the principal’s expenses with cash. Also, try not to use his/her ATM card to withdraw cash or write checks to “Cash.” If you need to use cash, be sure to keep receipts or notes.
- Getting paid? The power of attorney or state law may say that you can be paid for acting as agent. If you will be paid, be sure you charge a reasonable fee. It is up to you to keep detailed records as you go along of what work you did, how much time it took, when you did it, and why you did it.