A fiduciary holds assets on behalf of another. Examples of fiduciaries include trustees as well as executors and administrators of estates.Also, a person holding a power of attorney may be a fiduciary. Fiduciaries are held to an extremely high standard of conduct and may be subject to severe penalties should they not adhere to it.
A fiduciary is not permitted to enter into any transaction which requires self-dealing. An example of this would be if an executor were to borrow money from an estate. Even if the loan was promptly paid back at an abnormally high rate of interest, this would constitute a serious impropriety.
It is necessary for fiduciaries to use a high degree of caution in handling the funds of others. While one need not be restricted to low-interest savings accounts, investments should be relatively safe and low risk. Buying chocolate-covered Egyptian cotton futures would be an obvious example of a high-risk investment that might well land a fiduciary in hot water.
It is important to keep in mind that a fiduciary not only has a responsibility to safeguard assets on behalf of beneficiaries but also for creditors. Where assets are not insulated from creditors (such as with certain trusts) bills and taxes must be paid. If a fiduciary ignores payments of just debts and taxes where the assets to pay these items are available, he or she may later be compelled to make payment out of personal assets if the estate becomes depleted.
The books and accounts of a fiduciary must be properly kept and are open not only to inspection by interested parties but also subject to judicial review. It is important to note that there is no statute of limitations as to holding a fiduciary responsible for any breach of duty. The only other area of the law where there is no statute of limitations is homicide. A fiduciary may terminate his or her responsbility only by obtaining and appropriate release from those to whom he or she is legally responsible or by obtaining an order from a court having appropriate jursisdiction. When serving as a fiduciary, it is usually a good idea to receive both legal and accounting guidance from qualified and licensed professionals.