Whether you are creating a revocable living trust, writing a will and choosing an executor, or creating powers of attorney to delegate your legal decision-making abilities to others, you need to understand the concept of a fiduciary.
Under the law, ordinary people don’t have an obligation to look out for one another’s interests. But a fiduciary is someone who isn’t just an average stranger. Fiduciaries have a legal obligation to act in the best interests of someone else, known as principals. Let’s take a brief look at fiduciaries and why they are important.
At the heart of the fiduciary relationship is a duty of loyalty and care that the fiduciary has to the principal. For example, when you create a financial power of attorney, the agent you select will not only be responsible for managing the financial obligations you choose to delegate, but will have to do so in a way that serves your interests. The agent cannot simply use his or her new powers to go on a shopping spree, enter you into agreements that serve the agent’s interests, or do anything else that isn’t for your benefit.
Even though it isn’t always necessary to choose a fiduciary located physically close to you, in practical terms it is an important consideration. Your fiduciary needs to be able to step in at the right moments to manage your affairs. If that person is located far away or is regularly out of contact with you, this can limit his or her ability to see to your affairs.