As detailed in my previous blog post “What is a fiduciary?”, a fiduciary is someone who is legally empowered to manage assets on behalf of another person. Fiduciaries can disburse assets to any heirs or beneficiaries, settle outstanding credit owed by the estate, administer the payment of estate taxes, and more. Due to their autonomy, the activities of fiduciaries are constrained by significant legal oversight.
It is somewhat easy for an ordinary person to violate fiduciary obligations, if they do not undertake to get good advice and educate themselves of their obligations. For a fiduciary to be held liable by the court, he or she must only be found to have violated fiduciary responsibilities, in many cases, it does not matter whether or not they had the intent to do so. In short, violators are nearly always held liable for any missteps, even if they are just the result of honest mistakes or simple oversights. It is critical that fiduciaries be sufficiently informed not only about their duties and responsibilities as managers of an estate, but also the rules and regulations of being a fiduciary.
Two of the most common (and grave) fiduciary violations are: commingling of assets and misappropriation of assets. Commingling of assets and misappropriation of assets describe two sides of the same coin–that a fiduciary has mishandled assets of the estate he or she is to manage and in contravention of the law.
The joining of the estate assets and the fiduciary’s personal assets is called commingling. For example, a fiduciary may not pay the estate’s taxes by transferring money of the estate into his or her own account and then writing a personal check from the mixed pool of funds. Instead, a fiduciary would pay using estate accounts exclusively.
The misappropriation of assets occurs when a fiduciary uses estate monies for improper means, usually for personal obligations. For example, a fiduciary may not pay his or her own internet/phone bills with estate money (even if he or she is a beneficiary of the estate).
While commingling and misappropriation of assets often occur together in the same estate, i.e., people who commingle often misappropriate and vice versa. They are distinct phenomena, but often occur in concert. You may find it useful to think of these two violations in corporate terms: commingling of assets, an illegal merger of two corporations; misappropriation of assets, more like stealing.
Fiduciary rules are in place to protect both the estate and its beneficiaries. Although it often seems like an extra burden to undertake the appropriate record-keeping obligations when serving as a fiduciary, it is the responsibility for those that serve in this role. For more information on fiduciaries and probate, check out the Oakland County Probate Court online glossary of terms!