Legal Definitions - fiduciary

A fiduciary is a person or entity entrusted with the responsibility to act solely in the best interests of another party, known as the beneficiary. This relationship is built on profound trust and confidence, requiring the fiduciary to prioritize the beneficiary's well-being, often financial, above their own personal interests.

The duties of a fiduciary are stringent and include acting with unwavering honesty, good faith, loyalty, and full disclosure. They must avoid conflicts of interest and exercise reasonable care and skill in all decisions made on behalf of the beneficiary. Essentially, a fiduciary is legally and ethically bound to put the beneficiary's interests first.

• Example 1: A Financial Advisor

  Imagine a client hires a financial advisor to manage their retirement savings. The financial advisor acts as a fiduciary to that client. This means the advisor is legally obligated to recommend investment strategies and products that are genuinely in the client's best financial interest, even if those recommendations result in lower commissions for the advisor. They cannot push investments that benefit themselves more but are less suitable for the client's financial goals or risk tolerance.

  This illustrates a fiduciary relationship because the advisor is entrusted with the client's financial future and must prioritize the client's financial growth and security above any personal gain or preference.

• Example 2: An Executor of an Estate

  When a person passes away, the individual named as the executor in their will becomes a fiduciary to the deceased person's estate and its beneficiaries (the heirs). The executor is responsible for gathering all assets, paying off any debts, and distributing the remaining property according to the instructions in the will. They must act prudently, fairly, and impartially.

  The executor acts as a fiduciary because they are legally bound to manage the deceased person's assets solely for the benefit of the estate's beneficiaries, ensuring the will's terms are carried out faithfully and responsibly, without using estate funds for personal benefit or showing unfair favoritism.

• Example 3: A Board Member of a Non-Profit Organization

  Consider a member of the Board of Directors for a charitable foundation that provides scholarships to underprivileged students. Each board member serves as a fiduciary to the foundation and its mission. They are entrusted with the organization's resources and decision-making power regarding fundraising, investments, and scholarship allocations.

  This demonstrates a fiduciary relationship because the board member is legally and ethically obligated to use their position and the organization's resources exclusively for the benefit of the charity and its intended recipients (the students), not for personal gain or to advance their own business interests.