*This blog post is for informational purposes only and does not constitute legal advice; please consult a qualified attorney for guidance on your situation.
When someone acts as a fiduciary, they manage someone else’s money or property with care, loyalty, and good judgment. Think of it like this: they must put someone else’s financial interests first. A “conflict of interest” happens when the fiduciary has personal interests or outside pressures that might interfere with this responsibility.
What Does a Conflict of Interest Look Like?
A conflict of interest is any situation where the fiduciary’s benefit could come into play and influence their decision-making. Here’s a simple example:
Imagine a trustee, Sarah, managing a trust for her nephew, James. Sarah’s job as a fiduciary is to make decisions that are best for James—investing his money wisely, paying his bills, and ensuring his assets grow. Now, let’s say Sarah owns a small business struggling financially, and she’s looking for a loan to keep it afloat.
Sarah will be in a severe conflict of interest if she decides to “borrow” money from James’s trust to support her business. Even if she plans to pay it back, this decision serves her personal needs, not James’s. She’s putting her interests before James’s, which goes against her fiduciary duty to act solely in his best interest.
How Do Fiduciaries Avoid Conflicts of Interest?
To avoid conflicts of interest, fiduciaries must be transparent, avoid situations where their interests could interfere, and follow a strict code of ethics. They can’t make decisions that benefit them personally or financially at the expense of the person or organization they serve.
Why This Matters
When fiduciaries act with integrity and avoid conflicts of interest, they protect the trust and assets they’ve been assigned to manage. This helps beneficiaries feel secure, knowing their financial future is in reliable hands. By keeping personal interests out of the equation, fiduciaries build trust and ensure the person they serve always comes first.
©Laurel Loomer, 2024
