What does Fiduciary mean? It sounds like a complex and complicated word. Perhaps you’ve heard of the term in the news or in an Economics class. Legally, the term refers to the trust between, for example, a company and its shareholders. When used as a noun, the word fiduciary simply means a trustee. Finally, in terms of finance, the word refers to the relationship between paper currency and its value. Some currencies are backed by gold, others, the repute of the currency issuers.
This article shall briefly delve into the meaning of the word fiduciary. Without exploring its etymology, we shall see how fiduciary matters govern many aspects of finance, law, and currency.
Fiduciary, Defined More Closely
A person entrusted with fiduciary responsibilities administers the assets of the trusts under his responsibility, These include preparation of trust contracts, integration of the trust file, completion of procedures before authorities, registration of property ownership, private accounting, investment of resources, financial operations, granting of powers, identification, measurement and mitigation of risks, attention to instructions, execution of guarantees, attention to instructions, termination.
Fiduciary Responsibilities, In-Depth
In a deeper sense, a fiduciary trustee's responsibilities include the following:
Defend heritage of a company or person
Enforce the findings of a company
Is accountable to a person or company for their enforcement of the trust
Obey legal statutes
Non-delegation of his or her responsibilities
Manage the assets in the interest of the beneficiaries
The trust agreement between the fiduciary as trustee and the trust can expand or reduce these responsibilities but rarely do they amend or eliminate them. The fiduciary in some cases may be liable for losses to the estate that result from their actions or ignorance of legalities.
Moreover, the fiduciary’s responsibilities are sometimes referred to as “fiduciary liability.” This is especially the case when a person has responsibility for third party matters.
For example, a company’s Board of Directors has a fiduciary responsibility to the company’s shareholders; the directors of a bank is entrusted with safeguarding the deposits of clients; an Executor/Executrix is responsible for the use and dispersion of an inheritance.
A Closer Look at a Fiduciary’s Responsibilities
The fiduciary must keep a close watch on inherited assets. He or she must conserve and improve expenses, and may subsequently request reimbursement from the trustee.
The fiduciary may dispose of the assets if authorized.
The fiduciary must see to the debts incurred upon inheritance, sometimes with out-of-pocket payment. However, reimbursement from the trust may be requested.
Although this sort of trust agreement usually entails the obligation to preserve and transmit without the expenditure of inherited assets, there is a type of trust that allows the fiduciary to use what is inherited. Personally.
Types of Trust Agreements
Pure Trust: Obligation of the fiduciary to manage the assets to be transferred.
Waste Trust: Obligation of fiduciary to transfer the assets, but availability depends upon certain factors or subtypes of this agreement depending on what is desired by the trust. Subtypes include a fiduciary retaining a minimum amount of the estate’s assets so as to transmit them to the next estate or inheritors; or; an agreement where the fiduciary retains nothing after the estate’s assets are transferred.
Functions of the Fiduciary
As explained above, there are a series of criteria to take into account when becoming a trustee of a project, person, or institution. In turn, there are a series of particular functions that the fiduciary has within the realm of commercial law.
First, the trustee is responsible for managing everything related to the trust's assets. This is part of the fulfilment of the rights that the trust transfers to the fiduciary.
Also, fiduciary functions include monitoring everything related to the fulfilment of the purposes of the trust by the provisions of the project specifications, assets, or money to be administered.
As such, the fiduciary is under obligation to enforce the trust's specific wishes or instructions. The fiduciary is empowered to execute these actions by a grant of legal responsibility bestowed by the trust itself.
Finally, the fiduciary must deliver the financial statements of the trust as well as attend the various technical committees that are generated to clarify all the points corresponding to the project.
Who May Be Named as a Fiduciary?
Depending on the country, a person or institution may legally act as a fiduciary in a trusted process. It should be noted that many countries, according to current laws, make it clear that only institutions recognized by the state can act as trustees. This is the case, for example, in Panama.
In this regard, the Law primarily seeks to protect the trustor's assets. For this reason, legal statutes require that institutions wishing to hold fiduciary status must be duly registered by the state.
Additionally, institutions must be recognized and legitimate companies which are dedicated to the productive and economic development of the country. This is to ensure that trust law or any relationship between the fiduciary and trust within the countries where the figure exists, prohibit the administration of assets for illegal activities.
As such, institutions that wish to be fiduciaries must have an impeccable moral and ethical repute and record so as to generate greater trust among the parties involved in the trust.
The fiduciary, in addition to being the manager of the trust assets, also has a series of obligations to ensure the most positive development of his or her responsibilities. Non-compliance or irresponsibility may lead to a series of consequences such as legal revocation of fiduciary powers and possible personal repayment of damages using the fiduciary’s own assets.
Always, the responsibilities of a fiduciary emanate from the trust contract that he or she enters into with the trust. However, certain responsibilities originate with the Law itself and may not be set aside by the fiduciary or the trust.
We have seen that the role and responsibilities of a fiduciary are varied and complex. Differences in legal statutes and differences from one country to the next govern what a fiduciary may and may not do, and delineate what his or her responsibilities may be. Moreover, legal statutes also authorize what sorts of relationships may exist between a trust and a fiduciary, depending on the relationship of said fiduciary to the trust. Hence, the responsibilities of a fiduciary should be well understood prior to any agreements and contractual obligations. One should always be well-aware of expectations and legal responsibilities before entering into any relationship with a trust, as a fiduciary.