What is a Fiduciary?
There are many types of fiduciaries, and this article addresses best practices for being a fiduciary. It will focus on three types of estate planning fiduciaries: Attorney-in-fact (AIF) (agent) appointed by a power of attorney (POA) document, Personal Representative (PR) appointed by a Last Will and Testament (Will), and Trustee appointed by a trust document.
To give a foundation, let us seek to understand what a fiduciary is. The simple, straightforward definition of a fiduciary from the Consumer Financial Protection Bureau (CFPB) states:
“A fiduciary is someone who manages money or property for someone else. When you are named a fiduciary, you are required by law to manage the person’s money and property for their benefit, not yours.” (“What Is a Fiduciary?” Consumer Financial Protection Bureau, www.consumerfinance.gov/ask-cfpb/what-is-a-fiduciary-en-1769/. Accessed 3 July 2023.)
For example, a friend of yours may name you her fiduciary through a power of attorney (POA). This means that you are responsible for her finances if she becomes sick or injured. As a fiduciary, you should remember the four basic duties you have:
- 1. Act only in her best interest. Because you are dealing with your friend’s money and property, your duty is to make decisions that are best for her, not you.
- 2. Manage her money and property carefully. As your friend’s fiduciary, you will have important financial responsibilities and must carry them out with care. You might pay bills, oversee bank accounts, and pay for things she needs. You might also make investments, pay taxes, collect rent or unpaid debts, and get insurance for her, if needed.
- 3. Keep her money and property separate. Never mix your friend’s money or property with your own or someone else’s. Confused records can get you in trouble with government agencies such as adult protective services and/or the police.
- 4. Keep good records. You must keep true and complete records of your friend’s money and property or you could face legal consequences.
There are other types of fiduciaries in addition to those named under power of attorney. For example, guardians of property and trustees are also fiduciaries. For more information on your role as a fiduciary check out the guide to managing someone else’s money.
To give a more full definition of what it means to be a fiduciary, here is the legal definition from Cornell Law’s Legal Information Institute.:
“When someone has a fiduciary duty to someone else, the person with the duty must act in a way that will benefit someone else financially.
“The person who has a fiduciary duty is called the fiduciary, and the person to whom the duty is owed is called the principal or the beneficiary. If the fiduciary breaches the fiduciary duties, the fiduciary would need to account for the ill-gotten profit. The beneficiaries are typically entitled to damages.” (“Fiduciary Duty.” Legal Information Institute, www.law.cornell.edu/wex/fiduciary_duty. Accessed 3 July 2023.)
Be A Beneficiary, NOT a Fiduciary
As has been the recommendation for many years from the NAD PGTS Standing Committee, GC/NAD PGTS Department, legal counsel, and NAD Working Policy, Seventh-day Adventist Church organizations are “discouraged from serving as Power of Attorney and/or fiduciary as a function of their employment” (NADWP S40 80) for members. Acting as a fiduciary is not forbidden by PGTS standards or NADWP, but it is only allowed when there are “extenuating circumstances” and approved by the organizations governing board or committee (NADWP S40 80). And organizations can accept fiduciary duties for a trust or a will only if the denomination may substantially benefit from such will or trust” (NADWP S40 50). The appropriate governing committee must vote to authorize these responsibilities, and the committee must approve all significant acts. All assets under the management of the fiduciary must be accounted for separately from all other assets of the organization. There is to be no commingling between the organization’s assets and those managed on another person’s behalf (PGTS Accreditation Standard 32).
Voting of Fiduciary
The NAD WP and Standards vary as to when it is required for the organization to vote approval for the various fiduciary responsibilities. AIFs and PRs must be voted and approved when the need arises and a church employee begins to serve as the fiduciary. Trustees must be voted and approved when the documents are created, and the organization accepts the fiduciary responsibilities.
It is a BEST PRACTICES to have all fiduciary responsibilities, including AIFs and PRs, voted and approved by the responsible committee or board when the document is originated. Doing so records the fact that the committee accepts the current or future fiduciary responsibilities obligating the organization far into the future. There is a good chance that no one currently working in the office will be around when the fiduciary duties must be carried out. When the need arises there should be a second vote to authorize the persons who may now act on behalf of the legal organization to fulfill these fiduciary responsibilities.
When voting on these responsibilities, have your legal counsel direct how to vote. Sometimes the name of a specific person will need to be voted. Most of the time, however, it will be better to vote on a list of names the legal organization authorizes to act on behalf of the organization for the beneficiary’s benefit.
Fiduciary Responsibilities
A complete list of all present and future fiduciary responsibilities is required for POAs. A best practice would be to list all current or future fiduciary obligations (AIF, PR, and Trustee) as a tool for planning. As many accredited organizations know, they have promised fiduciary duties that have been agreed to in the past that can take decades to fulfill. A clear picture of these fiduciary responsibilities and a reasonable expectation of when they will be needed may help guide PGTS staffing decisions.
The General Conference PGTS office has not written any revocable estate planning documents for over 21 years. There is one revocable trust, one will, and one self-administered trust that carry fiduciary obligations for our office in the future. Many of your offices have fiduciary obligations that will not be fulfilled for decades.
Written Guidelines for Fiduciaries
Organizations that choose to accept fiduciary responsibilities for a trust or will are required by policy to have a written guideline for when the organization will accept fiduciary duties (NAD WP S 40 50). If your organization has voted to no longer accept fiduciary responsibilities, then your organization guidelines would indicate this decision and cite the minutes to fulfill this WP requirement. This requirement could be included in your attorney’s opinion letter that directs your organization’s operations.
Conclusion
Best practices go beyond what is included in the NAD WP and the PGTS Standards and are intended to give direction to the quality of service your organization offers to your constituent donors. NAD PGTS wishes all organizations to adhere to the highest quality of service to their donors. Be a beneficiary, not a fiduciary.