A fiduciary is a person who has a legal obligation to another party to act in that party’s best interest. The law of the state usually defines a fiduciary relationship. Many relationships where money or property is involved is a fiduciary relationship. A few professions involving a relationship include attorney-client, trustee-beneficiary, executor-estates, some financial advisors (though not all) and other relationships where a high level of trust is required. Probably the two most common fiduciary relationships in the eldercare field is that of the Principal-Agent and Guardian-Ward.

The Principal-Agent relationship exists where the principal appoints someone to act as his agent under a durable power of attorney. In this scenario, the agent is the fiduciary. He or she must act in the best interest of the principal. Pennsylvania requires certain notices to be included in a power of attorney document to advise both parties of their rights and obligations.

Often, POAs are drafted to allow the waiver of certain rights such as the obligation that the agent will not commingle their funds with the principal’s. Prior to signing the documents, the principal should review the powers, duties, and responsibilities of each potential agent with the client and ask any questions of the drafting attorney, so the principal understands the authority he or she is granting.

Self-dealing is the most likely breach of fiduciary duty that can occur in a principal-agent relationship because it puts the interest of the agent above the principal.  However, some POAs anticipate this commingling and intend it to occur because it implements their estate planning goals (asset protection). In most cases, however, the principal and the agent are better off setting clear boundaries early, requiring disclosure and discussion of any possible self-dealing in advance. There is an old saying that it is better to ask forgiveness than permission. In a fiduciary context, it is better to have discussions with the principal and/or the attorney before acting. Once a fiduciary breach occurs, it is hard to go back.

Fiduciaries should clearly understand which documents provide them with their authority, as well as who should receive copies and any included limitations. Some institutions and services may not accept older documents or court appointments, despite no expiration dates on powers of attorney or court orders. To avoid possible inconvenience associated with getting new copies from the court, the fiduciary should get the documents on file with financial institutions as soon as is practicable after issuance/execution. Sometimes originals will be required, and sometimes copies will be acceptable.

Correctly signing each document winds up being one of the areas where fiduciaries most commonly slip up. Seemingly simple issues, such as whether to sign personally or put “POA” after your name, are essential and should be given adequate attention. Incorrect procedures could subject the fiduciary to personal liability on a debt that he or she is undertaking for their principal. How are accounts set up? How should they be titled?

When it comes to financial planning for your fiduciary, everything needs to be explained to them as soon and as concisely as possible. The prudent investor rule is especially important for a fiduciary to be aware of. It may come off as complicated. A clear understanding avoids situations where the fiduciary takes the blame for investing mistakes.

Time frames and forms for recordkeeping vary from case to case. For the sake of making recordkeeping more straightforward, there are a few easy things to remember to have your fiduciary know:

  • Always keep copies of every check that is written out with your bank statements, as courts will require them with accounting reports.
  • Pay attention to the memo lines on the check and be meticulous about specifying the purpose of each check.
  • Use the second line of the check, usually shaded in grey, to note transactions and jog an agent’s memory in the future.

In many cases, the fiduciary is only accountable to the principal and the court. However, a fiduciary should always remember that their actions can and will be scrutinized.

Each fiduciary role has a specific set of accounting requirements. While some, such as Social Security requirements, are straightforward, others are more complicated. Agents need to stay on top of incomes and withdrawals for all of their fiduciary’s accounts and should be able to explain each transaction as well. For assistance on some of the more complicated requirements such as for Medicaid applications in Montgomery County and beyond, Slutsky Elder Law wants to help.

Being a fiduciary is a critical job. Someone, often a person who can no longer advocate for themselves, needs your protection, and you should treat the situation seriously by learning the rules governing the job. In doing so, you protect both yourself and the person you are advocating for.

As the top-rated elder care attorney in Chester County, PA, I am trained to deal with any issues regarding fiduciary-agent relationships. For any other questions regarding fiduciary laws or for a scheduling consultation, contact us today.

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