What is a fiduciary, and what does the duty mean?

The word "fiduciary" shows up in estate documents, bank forms and financial ads. It sounds technical, but the idea underneath is simple and very old. It is about trust, and what the law expects of someone you trust with your affairs.

This page explains what a fiduciary is, what the duty requires, and what happens when someone falls short. We use Washington's statutes as the worked example. Every role in an estate plan carries this duty, as our guide to the four roles in an estate plan explains.

What is a fiduciary?

A fiduciary is someone legally required to act in your interest and follow what you wrote. The duty comes with the role. Agreeing to serve means agreeing to it.

It is different from an ordinary favor. A friend who picks up your mail is being kind. A friend named as your financial agent under a power of attorney is a fiduciary, with duties a court can enforce.

The Consumer Financial Protection Bureau publishes guides for four kinds of people who manage someone else's money (CFPB):

• People named in a power of attorney
• Court-appointed guardians of property, or conservators
• Trustees under a revocable living trust
• Government fiduciaries, appointed to manage benefits such as Social Security or Veterans Affairs payments

Who is a fiduciary in an estate plan?

Every person you name in your estate plan is one. Here is how the duty looks in each role, with Washington's statute.

The executor and the trustee each have their own guide. The duty is the common thread.

What does a fiduciary have to do?

The details vary by role and by state. But three duties show up again and again.

Loyalty

A fiduciary puts your interests ahead of their own. In Washington, a trustee must administer the trust solely in the interests of the beneficiaries (RCW 11.98.078).

The same section makes self-dealing risky. A transaction the trustee makes for their own account can be undone by an affected beneficiary. A deal with the trustee's spouse, close relatives or their own business is presumed to be a conflict. The trustee can rebut that by showing it did no harm (RCW 11.98.078).

For an agent under a power of attorney, Washington's default rules require acting loyally and avoiding conflicts that impair their judgment (RCW 11.125.140).

Care

A fiduciary handles your affairs carefully, the way a sensible person in the same role would. Washington requires a trustee to "invest and manage trust assets as a prudent investor would" (RCW 11.100.020).

That means weighing the trust's purpose, taxes, inflation and the beneficiaries' needs. It doesn't mean never losing money. A Washington agent isn't liable just because the value of your property declines, absent a breach of duty (RCW 11.125.140).

Records and openness

A fiduciary keeps track of what they do with your money. Washington's default rule for an agent is to keep a record of all receipts, payments and transactions (RCW 11.125.140).

Trustees owe openness to the beneficiaries. In Washington, a trustee must keep them reasonably informed and notify them within sixty days of accepting the role (RCW 11.98.072). While you are living, information about your revocable trust goes only to you.

Following what you wrote

This one sits underneath the others. A Washington agent must act according to your reasonable expectations, as far as they actually know them, and only within the authority you granted (RCW 11.125.140).

That is why writing down your wishes matters so much. The clearer the instructions, the easier it is for any fiduciary to follow them. Our guide to the care plan covers the small things worth writing down.

A quick checklist for anyone named as a fiduciary

If you've been named, here is what the duty asks of you, day to day.

• Keep the person's money separate from your own.
• Save every receipt and write down every payment.
• Don't buy from, sell to or lend to yourself or your family.
• Follow the document and what the person said they wanted.
• Act only within the powers the document gives you.
• Ask for help from a lawyer or accountant when something is beyond you.

The CFPB's free guides for managing someone else's money walk through this in plain terms.

What happens if a fiduciary breaks the duty?

The law gives the people affected real tools. Here is how it works in Washington.

• Agents under a power of attorney. An agent who violates the law is liable for the amount needed to restore the value of your property (RCW 11.125.170). You, your spouse, a guardian, or another person concerned for your welfare can ask a court to review the agent's conduct (RCW 11.125.160).
• Trustees. A beneficiary can undo a self-dealing transaction (RCW 11.98.078). A beneficiary or the trustee can ask the superior court to change the trustee for reasonable cause (RCW 11.98.039).
• Executors. In Washington, a person can't serve as personal representative if a court or agency found a breach of fiduciary duty within the last 36 months (RCW 11.36.010).

Most fiduciaries never come near any of this. But the rules are why the duty means something.

Is a financial advisor a fiduciary?

Sometimes, and it depends on the kind of professional. The Securities and Exchange Commission says that under federal law, an investment adviser is a fiduciary. That duty includes a duty of care and a duty of loyalty (SEC).

Other financial professionals may work under different rules. If it matters to you, ask directly how they are regulated.

Family member, friend or professional?

Any adult you trust can be a fiduciary. The duty is the same whether it is your sister, your neighbor or a trust company. What differs is experience, availability and how long they can serve.

A brother who is 64 and lives two states away may be loyal and careful. But he may not be reachable in a hurry, or available in twenty years. Some people name family first and a professional second, so there is always someone ready.

Our posts on corporate vs individual trustees and professional fiduciaries compare the options. If you are wondering who would act for you if no role were filled, start with who decides when you can't.

Trella Trust Company, a Washington State chartered trust company, serves in this role for Kinly members. It can be named in any of the four roles, first or as backup to people you choose. You can read how it works.

Common questions

What does it mean to be a fiduciary?

It means you are legally required to act in another person's interest and follow what they wrote. In practice, that means loyalty, care and good records. Powers of attorney, executors and trustees are all fiduciaries.

Is a power of attorney a fiduciary?

Yes. In Washington, an agent under a power of attorney must act in good faith, within the authority granted, and according to the person's reasonable expectations. By default they must also act loyally, avoid conflicts and keep records of every transaction.

Can a family member be a fiduciary?

Yes. Any adult you name as executor, trustee or power of attorney becomes a fiduciary, related or not. The duty is the same for a sister as for a trust company.

What happens if a fiduciary steals or mismanages money?

They can be held responsible. In Washington, an agent who violates the law is liable for the amount needed to restore the value of the property. A beneficiary can undo a trustee's self-dealing and ask a court to replace the trustee.

Does a fiduciary have to make money for me?

No. The duty is to act carefully and loyally, not to guarantee results. In Washington, an agent isn't liable just because the value of your property declines, unless they breached a duty.

Sources

• RCW 11.36.010: Who may serve as personal representative (Washington State Legislature)
• RCW 11.48.010: General powers and duties of personal representatives (Washington State Legislature)
• RCW 11.98.039: Successor trustee and changing a trustee (Washington State Legislature)
• RCW 11.98.072: Trustee duty to inform beneficiaries (Washington State Legislature)
• RCW 11.98.078: Trustee duty of loyalty (Washington State Legislature)
• RCW 11.100.020: Prudent investor rule (Washington State Legislature)
• RCW 11.125.140: Agent duties (Washington State Legislature)
• RCW 11.125.160: Judicial relief (Washington State Legislature)
• RCW 11.125.170: Agent liability (Washington State Legislature)
• Managing someone else's money (Consumer Financial Protection Bureau)
• Commission Interpretation Regarding Standard of Conduct for Investment Advisers (SEC)