A family member or friend has asked you if you would agree to be the executor of her estate and the trusts created by her will.
A family member is unable to continue managing his financial affairs and asks you to do it either informally or under a financial power of attorney.
A long-standing client has no one she feels she can rely upon to carry out her wishes and asks you to serve as the trustee of her revocable trust and life insurance trust.
If you say yes to any of these requests, then congratulations! You are a fiduciary.
A fiduciary is one who owes a duty of utmost good faith and loyalty to another. Fiduciary comes from the Latin word fiduciarius, which comes from fiducia meaning confidence and fidere meaning to trust. “It is derived from the Roman law, and means (as a noun) a person holding the character of a trustee, or a character analogous to that of a trustee in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires.” Black’s Law Dictionary, 2d Ed.
A form of the word is found in the motto of the United States Marine Corps, Semper Fidelis, or Semper Fi, which means always faithful.
Abraham Lincoln named his dog “Fido” which in Latin means, “I am loyal.” Lincoln, in naming his dog, captured the essence of a defining characteristic of dogs, and in a word explained what the law expects of a fiduciary, undivided loyalty.
Actual image of “Fido,” taken either in 1861 shortly before Lincoln became President or in 1865, at the time of Lincoln’s funeral.
The Highest Standard of Conduct
If the picture of Fido begins to worry you about what being a fiduciary might mean, then you are on the right track. Fiduciaries are held to the highest standard of conduct known in the law, that of undivided loyalty, and with the duty comes the highest level of responsibility and exposure to liability. A fiduciary must place the interests of the beneficiary ahead of the fiduciary’s own interests. The purpose of the rule of undivided loyalty is to require the fiduciary to maintain a position where every act is above suspicion, and the trust estate, and it alone, can receive, not only the best services, but also the fiduciary’s unbiased and uninfluenced judgment.
While you may think that your appointment as a fiduciary is an honor, like being elected President, what it may really mean is that you are the one who is going to get sued. Serving as a fiduciary is very hard work. It is challenging work, even for professional and corporate fiduciaries who have the benefit of experience and detailed policy manuals.
For the inexperienced, being a fiduciary can become a nightmare, particularly if you find yourself in the middle of a family or business conflict. The first step to doing the job successfully is to understand how difficult it is to carry out someone else’s wishes regarding someone else’s money. You will need objective advice from lawyers, accountants, and other professionals. And you will need to constantly communicate with your beneficiaries to keep them informed and hopefully get their approval. Remembering that your position is more like that of Fido, than the President, is a great place to start.