As we go through life, we often find ourselves in positions where we have to make decisions on behalf of others, whether it be for family members, friends, or acquaintances. These decisions can range from simple tasks like paying bills to more complex ones like managing investments. When we take on such responsibilities, we may unintentionally become informal fiduciaries, and with that comes a set of legal duties that we must uphold.
Becoming an informal fiduciary can happen organically, as you step up to help someone in need. However, it is important to recognize the potential legal and ethical implications of taking on such responsibilities. Before you agree to manage someone else's affairs, it is essential to have a clear understanding of what will be expected of you and the legal obligations you will be assuming.
What Is an Informal Fiduciary?
A fiduciary is a person or entity that is entrusted to act in the best interests of another party. This can be a legal, ethical, or moral responsibility, and it requires the fiduciary to put the interests of the other party ahead of their own. Fiduciaries can include financial advisors, trustees, lawyers, and other professionals who have been given a position of trust by their clients or beneficiaries. As a result, fiduciaries are held to a high standard of conduct, and they are expected to act with honesty, integrity, and loyalty at all times. If a fiduciary fails to fulfill their duties or acts in a way that harms the other party, they can be held liable for any losses or damages that result from their actions.
An informal fiduciary is someone who has been entrusted with managing the affairs of another person, but without any formal legal agreement or appointment. For example, if you are managing the finances of an elderly parent who is no longer capable of handling their own affairs, you are acting as an informal fiduciary. Similarly, if a friend asks you to manage their investments while they are out of the country, you are also acting as an informal fiduciary.
What Duties Does an Informal Fiduciary Have?
As an informal fiduciary, you have a duty to act in the best interests of the person whose affairs you are managing. This means that you must always act with honesty, integrity, and loyalty. Additionally, you must avoid any conflicts of interest that could compromise your ability to act in the best interests of the person you are representing.
You must also exercise a reasonable degree of care and skill when managing the affairs of the other person. This means that you should take the time to educate yourself about any financial or legal matters that you are not familiar with, and seek professional advice when necessary.
In some cases, an informal fiduciary may also be required to keep accurate records of their actions on behalf of the other person. For example, if you are managing the finances of a family member who has appointed you as their power of attorney, you may be required to keep detailed records of all transactions and decisions made on their behalf.
Understanding the Legal Obligations of an Informal Fiduciary
When taking on the role of an informal fiduciary, it is a good idea to consult with an attorney who can help you understand your legal obligations and offer guidance on how to best manage the other person's affairs. This can help you avoid any potential legal pitfalls and ensure that you are acting in the best interests of the person you are representing. With the assistance of an attorney, you can feel confident in your ability to fulfill your legal obligations and make informed decisions on behalf of those you care about.