Millions of Americans manage money or property for a loved one who’s unable to pay bills or make financial decisions. If you accept this role as financial caregiver (also known as a fiduciary), the law requires you to manage that person’s money and property for his or her benefit, not yours. It does not matter if you are managing a lot of money or a little. It does not matter if you are a family member or not.
To describe how things happen when you become a fiduciary, let’s start with a scenario. Your family member or friend that receives money, property or benefits is named Robert. When you act as a fiduciary for Robert, you have four basic duties that you must keep in mind:
- Act only in Robert’s best interest.
- Manage Robert’s money and property carefully.
- Keep Robert’s money and property separate from yours.
- Keep good records.
According to the Consumer Financial Protection Bureau, a person’s fiduciary duties for Robert could be bundled into different specific duties:
POWER OF ATTORNEY
A power of attorney is a legal document used to give you legal authority to make decisions about Robert’s money or property. It allows you to make decisions for him if he is sick or injured.
Under a power of attorney, Robert is called the principal. You are called the agent. Another name for agent is attorney-in-fact.
There are four types of power of attorney, each with different limitations. Click here for an explanation the differences:
- Limited – only for a specific purpose or period of time
- General – gives comprehensive control
- Durable – continues even if the principal becomes incapacitated
- Springing – takes effect when Robert becomes incapacitated or other conditions occur
While many pre-packaged do-it-yourself power of attorney forms are available, it is a good idea to have an attorney draft the form specifically for you. There are many issues to consider and one size does not fit all. Many states have statutory power of attorney forms which may be useful.
A revocable living trust is a legal document. Robert may make a revocable living trust to give you legal authority to make decisions about his money or property in the trust if he cannot make decisions himself because he is sick or injured.
He also can use the revocable living trust to say who will get his money or property after he dies. In some states, the term “living trust” is used to mean a different type of trust than a “revocable living trust.”
There are three roles under a revocable living trust.
- The person who makes the trust may be called the settlor, grantor or trustor.
- The person who makes decisions about the money or property in the revocable living trust is called the trustee. A trustee can be an individual or a financial institution.
If there is more than one, they are co-trustees. A successor trustee may also be named and acts only if a trustee can no longer fulfill that role. Robert can name himself as trustee and you as co-trustee immediately, or you may be a successor trustee who can act when he can no longer make decisions.
- A person who receives money or property from the revocable living trust is called a beneficiary. Robert may be the only beneficiary while he is alive, or he may name co-beneficiaries who receive some money or property from the revocable living trust before he dies. The people who receive money or benefits from the revocable living trust after Robert dies are called residuary beneficiaries.
What property will I manage?
Only property actually transferred to the revocable living trust and only after you become the trustee. A living trust is ineffective unless Robert puts his money or property into it. Some state laws require Robert to change ownership of his money or property from his name to the name of the revocable living trust.
In other states, Robert must switch ownership from his name to the name of the trustee who holds the property for the revocable living trust. As trustee, you will have the legal authority to spend and invest the money and property in the revocable living trust for the benefit of Robert and any other beneficiaries. You do not have legal authority over any money or property that is not in the trust.
Can a revocable living trust be changed or revoked?
As long as Robert still can make his own decisions and the terms of the trust allow him to do so, he can change or end (revoke) the revocable living trust.
When do your responsibilities end?
If Robert names a new trustee or ends the trust, your authority and responsibilities end.
A COURT APPOINTED GUARDIAN
A guardian of property is someone the court names to manage money and property for someone else whom the court has found cannot manage it alone. Sometimes a guardian of property is also appointed as guardian of the person. A guardian of the person makes Robert’s health care and other personal decisions.
Sometimes a different person is appointed to be the guardian of the person, or Robert himself may still be able to make these personal decisions.
Terms can differ. In many states a guardian of property may be called a conservator or guardian of estate. Robert’s money and property is called his estate. A person under guardianship may be called an incapacitated person, protected person or ward.
As guardian of property, you have a double duty—both to Robert, the person you are serving, and to the court.
DUTY TO ROBERT
You’ll be deciding where the funds will be held and who will be responsible for overseeing any of Robert’s investments, bank accounts, etc. You’ll need to maintain ongoing contact with Robert’s financial institutions to ensure that everything is running smoothly and being dealt with appropriately.
You might do so yourself, or enlist the help of a professional financial adviser. You must always keep Robert’s best interests in mind. Involve Robert in decisions as much as possible.
If Robert has substantial holdings, you’ll be responsible for determining whether assets such as real estate and tangible personal property should be bought, held, or sold. This can include things like selling Robert’s car to raise the money to purchase a properly equipped van, or selling Robert’s primary residence to raise the cash necessary to pay for his care.
DUTY TO THE COURT
You are an agent of the court. The court has trusted you. You must report to the court regularly and be ready to answer any questions. Your responsibilities as Robert’s guardian of property last until the court relieves you of your duties. The court may do this because someone else has been appointed, Robert has died, or Robert no longer needs a guardian.
A GOVERNMENT FIDUCIARY
What is a representative payee or VA fiduciary? A government agency may appoint someone to manage income benefits for a person who needs help managing those benefits.
For example, the Social Security Administration, the Office of Personnel Management, and the Railroad Retirement Administration call the person who is appointed a representative payee. The Department of Veterans Affairs has a similar program, but the person appointed is called a VA fiduciary. State agencies may have similar arrangements. Each agency may have different rules and procedures.
Since you have been appointed as Robert’s representative payee, we will call you a rep payee for short. Robert is the beneficiary.
Once you are appointed as a rep payee or VA fiduciary, you must follow the basic fiduciary duties. Plus, you also must meet certain reporting requirements of the particular agency.
A Tower Representative Payee Account is available to accept Social Security (SSI) payments for someone who cannot manage or direct someone else to manage his or her money. Services include:
- Prime Share and Club Accounts, excluding Holiday Club Accounts.
- Regular Checking. Checks must be imprinted in accordance with the requirements of the Representative Payee Account.
- Home Banking, Bill Payment, eStatements and Tower Talk 24
- Debit card. Issued in representative payee’s name only.
- ACH credits and ACH debits (if authorized by the representative payee).
The information provided above does not give you legal advice. State laws vary, so you may have additional duties. Talk to a lawyer if you have questions about your duties.
Resources: The Consumer Financial Protection Bureau, The American Bar Association, ElderLawNet, Inc., The Balance.