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What is a Fiduciary Relationship?

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  • Written By: Charity Delich
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 October 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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In a fiduciary relationship, one person, the fiduciary, is charged with managing the needs or property of another person, the beneficiary. Generally, a fiduciary must act in the best interest of the beneficiary rather than in the fiduciary’s own interest. Most fiduciary relationships are characterized by certain fiduciary duties. For instance, the fiduciary typically pledges to maintain a high degree of trust, loyalty, and truthfulness when acting on behalf of the beneficiary.

A fiduciary relationship can exist in a variety of different situations. Some of the most common fiduciary relationships are created through a power of attorney, which is simply a legal document in which one person, called the principal, authorizes another person, referred to as the agent, to make certain decisions on the principal's behalf. In offering legal advice, lawyers generally serve as fiduciaries to their clients. Bankers, accountants, and financial advisors typically also act in a fiduciary capacity when investing on their clients' behalf or offering financial advice.

Court-appointed fiduciary relationships are also frequently entered into between a fiduciary and a beneficiary. For example, a court may appoint a grandparent, uncle, or older sibling as a guardian to a girl whose parents are deceased or unable to care for her. In this capacity, the guardian serves as a fiduciary and is charged with acting in the girl’s best interest. Guardians can also be appointed for mentally incompetent individuals or elderly people.

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Conservators, executors, and personal estate representatives make up another category of court-appointed fiduciaries. A conservator fiduciary relationship typically forms when a court determines that a person is unable to handle his or her financial affairs. Under the court’s supervision, the conservator manages the property for the benefit of the incapacitated person. Executors and personal estate representatives are usually appointed to administer a deceased person’s estate. Courts frequently appoint attorneys or trust companies to carry out this type of fiduciary relationship, and they are responsible for inventorying assets, paying bills, and distributing estate property.

A trust is a legal entity that centers around a fiduciary relationship. When a person creates a trust, he or she generally appoints a trustee to manage the assets in the trust. In this capacity, the trustee serves as a fiduciary and is generally charged with acting in the best interests of the trust beneficiaries or the trustor.

Fiduciary relationships are also frequently formed in the healthcare arena. For instance, a healthcare surrogate may be appointed to make medical decisions on behalf of a person who becomes incapacitated. This type of fiduciary relationship is usually created through a document called an advance medical directive or durable power of attorney for health care.

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