We often say creating a document is not the same as making a plan. A power of attorney is a good example of this concept. The execution of the document is really only the first step. The plan itself does not begin to work until the fiduciary begins to act.
What is a fiduciary? Generally, a fiduciary is a person who acts in the place of another person, known as the principal. The fiduciary must prioritize the principal’s needs above the agent’s needs, for the purpose of protecting and using the property for the benefit of the beneficiary, which often is the principal.
Simply put, a fiduciary is the person you appoint to take care of your property if you are unable to do so yourself.
People often are hesitant to become fiduciaries because even fiduciaries with the best of intentions can find themselves in trouble. In order to protect the principal as well as themselves, fiduciaries must be organized, transparent and cautious.
Perhaps the easiest starting place for any acting fiduciary is to create a record-keeping binder. In the front, include a copy of the power of attorney or whatever instrument gives the power. After the power of attorney, the fiduciary should make a list of accounts and properties that he or she is responsible for managing.
After the list of assets, the fiduciary should add a section for any accounts, deeds or titles of property that he or she will need to access. Especially for financial accounts, the fiduciary should keep copies of each statement in the binder. Behind each statement, an envelope or clear page protector can be used to hold receipts from the month. The agent should make notes on the statement to prevent future confusion.
A record-keeping binder only works well if the fiduciary keeps good records. Agents are best served by using a check or in some cases a debit card to make purchases. Cash is rarely a good idea, as cash transactions are nearly impossible to track.
Fiduciaries also should be transparent. Power of attorney agents are most often in trouble with extended family members because of lack of transparency.
Regardless of whether actual exploitation has occurred, a refusal to share information does not usually help already strained familial relationships. Even if the principal does not want specific details of assets shared, fiduciaries should, as much as reasonably possible, keep family members apprised of care needs and costs so significantly diminished funds are not a surprise later.
For example, if family members know the principal is residing with his son, but have no idea the son is paying for costly around-the-clock care, learning the principal’s once sizable assets have been depleted very well may cause some disgruntled family members to take action in court later.
Finally, agents should be cautious. Fiduciaries always should be mindful that the money and property they are managing belongs to someone else. If the principal wants to make a gift to the agent, the safest way to accomplish this is by the principal making the gift himself, rather than requiring the agent to take a self-serving action in his role as fiduciary.
If agents are handling investment accounts or large amounts of money, they have the duty to invest wisely. A good practice is to find a reputable financial advisor, so the fiduciary can rest assured that a professional is protecting and growing the assets.
A good fiduciary is a neutral manager for the principal’s property. By keeping careful records and acting transparently and cautiously, fiduciaries can provide a much-needed service without fear of negative consequences.