Lay people often agree to act as an Agent or Trustee on behalf of another family member — usually a parent — without knowing that they are agreeing to become a Fiduciary and what that means. Becoming a Fiduciary is entering into a legal relationship that entails trust, responsibility and accountability. There are many different types of fiduciary positions, including Agents, Trustees, Executors, and Conservators. Married people also owe each other a fiduciary duty in their dealings with each other and the couple’s Community Property Estate.
The word “Fiduciary” is a legal word. Broadly speaking a Fiduciary means anyone who acts in a representative capacity, with legal authority, on behalf of another (such as another person and/or their estate). A Fiduciary broadly speaking has two very important legal duties: First, the Duty of Loyalty, that means to always act in the best interest of the principal; and second, the Duty of Care, that means to act competently under the circumstances.
Anyone who acts as an Agent under a Power of Attorney is a Fiduciary. That is true regardless of how formally or informally the Power of Attorney was created and regardless of how informed or uninformed the Agent was as to his or her duties. Even boiler plate preprinted Power of Attorney stationary form once duly executed is sufficient to make the Agent a Fiduciary, if and when they agree to act as Agent.
That means the Agent under the Power of Attorney must always act both competently under the circumstances and in the best interest of the principal. They must avoid Conflicts of Interest, such as self dealing, except sometimes as expressly and properly waived in the Power of Attorney. When an Agent, or any Fiduciary, breaches their duties they can later be held responsible in Court.
Some people are surprised to learn that even a lay person when acting as an Agent under another person’s Power of Attorney can under current California law be held to account under the same Standards of Care as a paid professional Fiduciary, even when acting on behalf of a close relative. That means an Agent who uses his fiduciary authority to control the investments should obtain professional investment advice from a qualified financial adisor. The law otherwise favors protecting the Principal and holding the Agent accountable.
Accordingly, no one acting as a Fiduciary should ever go it alone. To properly carry out their fiduciary duties, an Agent and Trustee often obtain professional guidance, when and as needed, from an attorney, financial advisor and tax preparer. So long as the agent or Trustee acts responsibly in hiring and following the advice of these competent advisors the Agent or Trustee has typically fullfilled his or her Duty to Act Competently.
Unfortunately many people become fiduciaries and do not seek needed legal and other professional guidance on a timely basis and/or they engage in self dealing and run afoul of their fiduciary duties. A go it alone approach is easily done when the fiduciary relationship is not court supervised, such as with the Power of Attorney and the Trust. Unsupervised lay fiduciaries can proceed to act — in ignorance of their fiduciary duties — without an attorney.
It is only later-on, down the road, when the actions of the Fiduciary are disputed by unhappy interested persons — oftentimes family members — that the lay Fiduciary then seeks an attorney for guidance on what has already happened. Oftentimes that comes too late because much damage has already occured.
It is wise, therefore, is to involve a qualified attorney at the very outset when the fiduciary relationship is being contemplated and not to proceed with do-it yourself preprinted legal forms. A qualified attorney can properly advise the client and then draft the scope of the Fiduciary’s duties, the fiduciary’s powers and any appropriate exceptions to the prohibition against conflicts of interest (self dealing). Later, when the Fiduciary’s duties commence — which in an estate planning context is upon the sooner of the incapacity or death of the principal — the Fiduciary should then promptly seek the guidance of a qualified attorney and other professionals as needed.