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What Does It Mean to Be a “Fiduciary”?

A family member or friend may ask you to act as power of attorney to make medical or financial decisions on their behalf. This person may be planning for a time when they can’t take care of their affairs due to an accident or illness. For example, they might become disabled or incapacitated and need a trusted person to step in. They may also be writing a will and finding ways to prevent problems when the estate goes through probate.

If you are named as a guardian, executor of an estate, trustee, or power of attorney, the law calls you a “fiduciary.” You must act in the best interests of the person who named you. It is a selfless act of loyalty, requiring good faith. What does that mean?

  • You are not allowed to use the person’s property for your own profit.
  • You can’t give gifts to yourself or others if the person has not authorized it.
  • You can’t mingle the person’s property with your own.
  • If you spend the person’s money, you must carefully document the purpose and amount for the court.

What is a Fiduciary Relationship?

The “fiduciary” relationship imposes the highest duty in law. If you violate that duty, you may become personally liable.

If you are the one naming a person in any fiduciary role, you must be sure that person is trustworthy and understands your needs and intentions.

Choosing the Wrong Person to Act on Your Behalf

A New Jersey probate case (In re Cenaffra) shows what can go wrong in a fiduciary relationship. Christine named her daughter, Patricia, to be the executor of her will. On Christine’s death, her other daughter, Diane, received a check from her mother’s estate for $10,000.00 – yet Christine’s house had sold for nearly $230,000.00.

The judge ordered Patricia to produce an “accounting” of where all that money had gone. An accounting is an inventory of estate assets and a record of all income and expenses. Patricia refused. An examination of Christine’s inheritance tax return revealed that despite a gross estate value of $319,368.00, the estate bank account contained only $6,886.00.

Patricia had spent $40,000.00 on what she claimed were home repair expenses but couldn’t produce any building permits. She had also given herself $110,000.00 as “fees” for her executor duties, plus a “gift” of $27,000.00. No wonder she pled the Fifth Amendment.

A judgment of $200,422.00 was entered against her. The judgment was affirmed on appeal, with the requirement that the trial judge calculate the damages more specifically.

Protecting Yourself from People Like Patricia

Most people are not like Patricia. If you are named guardian, power of attorney, or executor of an estate, follow a few simple principles.

  • Make sure you don’t personally benefit from what you do with the other person’s property.
  • If you are fairly compensated for your work, refrain from doing anything that might look like a conflict of interest.
  • Keep other beneficiaries waiting to receive their inheritances informed of everything you are doing.
  • Be transparent about your actions, record them and keep receipts.

If you have questions about estate planning and who to place in fiduciary roles, an estate planning attorney can help. The lawyers at Russo Law Group, P.C share ways to determine who might act in your best interests and support those who are already named.

Estate planning can bring up some challenging questions, especially if you have a large or complex estate and family structure. Sometimes seemingly obvious choices aren’t the best suited to the role. A person designated to make medical and financial decisions must be well organized and handle decisions loyally and ethically. Contact an estate planning attorney at Russo Law Group, P.C, or call 1 (800) 680-1717 to speak with our caring and compassionate staff. Our lawyers are experienced with all aspects of estate planning and elder law in New York. Be sure to take advantage of our free seminars and webinars to learn more about how we help you plan for the future and achieve peace of mind.

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