When Do You Need A Fiduciary Representative?
The designation of a fiduciary representative occurs in a wide range of situations. If you're thinking about appointing someone with fiduciary powers, it's a good idea to know when that's an appropriate choice. These four bits of information are important to understanding when you should consider it.
What Is a Fiduciary?
There are many financial situations where you might need to assign your powers and duties to another party. When this is done in a legally binding fashion, that person becomes known as a fiduciary representative. They can then make financially important decisions on your behalf.
The Legal Obligations of Fiduciaries
In addition to decision-making powers, fiduciary representatives also take on legal obligations. Foremost, they have a duty to preserve the financial interests of whatever they've been assigned to look over. If they fail to do so, they may have to compensate the person or organization they were representing. Likewise, extreme cases of irresponsibility or fraud may lead to fines or even jail time. In other words, the law takes the idea of a fiduciary very seriously.
A common example is what happens when an executor is appointed to disburse the resources of an estate. While the estate's distribution is pending, they have an obligation to the money into accounts that will take on the least risk possible. If they were to put the money into the stock market, for example, and lose some of it, the fiduciary representative would be on the hook for paying the difference back to the estate with interest.
When Are Fiduciaries Called Upon?
A fiduciary can be an individual or a corporation. Generally, one is appointed when someone can't effectively represent their interests.
Executors and administrators of estates are always considered fiduciaries. Someone can also be appointed to the role to help a person with dementia or mental limitations. Guardianship is also frequently accompanied by fiduciary responsibilities. There are scenarios where people can be granted these powers because someone is going to be unavailable, too, such as a business representative. Some forms of trusts also are set up with fiduciaries involved in their operations.
Making It Official
Most states require significant paperwork to be filed before allowing someone to serve as a fiduciary representative. The representative must affirm that they fully understand the duties and rights of the job, and they must acknowledge the potential penalties if they abrogate or fail in those duties.