Fiduciary Duty – Best Practices

If you are serving as a fiduciary, then you need to follow some basic “best practices.”  What follows are the initial steps that you should consider taking, and then overall guidelines.

First, understand your role. The most common types of fiduciary roles have a writing (a trust, a will, a court order, a power of attorney) and an applicable statute.  Read them.  

Second, know your beneficiaries.  These are the people or entities to whom you owe your  fiduciary duties. They may be strangers to you. You may not like them.   None of that matters. You are now tied to them.

Third, hire an attorney.  Most people who are thrust into a fiduciary role have no prior experience or training.  It will be much easier for you to stay out of trouble if you seek and follow expert advice.

Fourth, decide if you really want to serve. If you do not, then either do not accept the appointment or resign.  This should be done in writing.

Fifth, figure out what you are managing.  A lot of fiduciaries spend their first few months looking for assets.  

All of this has been leading up to the real action:  serving as a fiduciary. The following practices should be ongoing.  

Keep the fiduciary assets separate from your own

Keep the fiduciary assets separate from your own.  Open a fiduciary bank account. Never title a fiduciary asset into your own name individually.  Try not to pay fiduciary bills through your individual credit card.  

Know how to correctly sign documents and what type of document you need to show others your authority.  

Beginning day one, keep a record of assets coming in and assets going out.  Keep all receipts. Do not throw out the original documents. Keep a record of increases and decreases in assets, and whether they were principal or income.

Get your attorney’s advice before you pay yourself for serving as a fiduciary.  If you plan to take compensation on an hourly basis, then keep a good record of the hours that you work, the tasks you completed during those hours, the hourly rate that you are paying yourself, and the justification for that hourly rate.  Do not forget to report your compensation to the IRS.

Keep documents that show your decision-making process

If you are making investment decisions, keep documents that show your decision-making process.   If you are selling assets, then make sure the sale is for fair market value. Do not self-deal unless the governing document expressly permits it.  If you are not experienced in money management, hire a financial planner. Become very familiar with the prudent investor rule.

When you distribute fiduciary assets to a beneficiary, keep a record of the amount, the recipient, and whether the disbursement was out of principal or interest (this is a big deal).

When in doubt get written beneficiary approval or court approval before taking action.

You will need to keep your records as long as you could be liable to the beneficiaries.

Just be honest, organized, informed and savvy.  You’ve got this. 

Virginia Hammerle will be presenting ” Wills, Ancillary Documents and End of Life Issues ” on August 21,2019 at 11:00 a.m.  at the free Seniors Aging in Place Resource Fair at The Meadows Conference Center, 2900 Live Oak Street, Dallas.

This column contains general information and is not legal advice.