Other People’s Money (OPM) Laws

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 What is Other People’s Money (OPM)?

In the legal sense, other people’s money (OPM) refers to any situation in which one party is entrusted with keeping or holding money for another individual. The party holding the money will typically hold it for a specific time and reason.

A common example of this would be when an individual seeks to transfer money to a recipient and does so through the use of a trustee. In this situation, the trustee is a non-interested third party tasked with holding the funds until the time is specified for transfer.

The individual who owns the trust property to be distributed is called the settlor. Trustees may be necessary in cases that involve a donor who does not want the recipient to obtain the funds immediately.

For example, if the settlor wants the recipient to graduate college before receiving the funds. A trustee has various duties involving the other individual’s money which they are holding.

Other examples of when an individual may hold another individual’s money are when they put their money in a bank or when donors invest funds in companies for small business grants.

What are Some Other People’s Money Laws?

Other people’s money is related to securities. Securities are a variety of interests that involve an investment.

The return of these types of investments must be primarily or exclusively dependent upon the efforts of an individual other than the investor. Securities law involves multiple federal laws and regulations which serve to govern the following:

  • Sale;
  • Purchase; and
  • Creation of security interests.

One agency in the United States is responsible for enforcing securities laws, the Securities and Exchange Commission (SEC). The SEC is tasked with maintaining the integrity of the securities market and protecting investors.

The SEC accomplishes these tasks by requiring that a public company disclose all meaningful financial information to the public in addition to other information so that the public may properly evaluate security investments.

There is also a nongovernmental organization, the Financial Industry Regulatory Association (FINRA), to “safeguard the investing public against fraud and bad practices.” FINRA also enforces the rules governing registered brokers and broker-dealer firms in the United States. FINRA regulates:

  • The trading of equities;
  • Corporate bonds;
  • Securities futures; and
  • Options.

What is a Trustee?

A trustee is an individual who holds legal title to property that has been transferred from the settlor. It is important to note that this does not mean the trustee owns that property.

Instead, the trustee has a fiduciary duty to fulfill obligations to the beneficiaries imposed by the trust. A fiduciary duty is an obligation to act in the interests of another individual.

What are Some Common Trustee Duties?

As previously noted, trustees have a fiduciary duty to the beneficiaries of a trust. A fiduciary duty is a special duty owned by one party to another and imposed by state law.

Because the trustee is the individual who holds legal title to the property in the trust, the trustee has the power to transfer that trust property to the beneficiaries according to the instructions which the settlor of the trust provides.

The fiduciary duties of a trustee typically include:

  • The duty of loyalty: A trustee must ensure that the beneficiaries’ interests in the trust property are protected. A trustee is not permitted to take any action which would favor themselves and impair those interests;
  • The duty of care: A trustee is responsible for determining how, when, and what to invest when a settlor places funds in the trust which are to be invested. These decisions must be made with diligence and care as well as be reasonable;
  • The duty to separate funds: This is similar to the duty of loyalty. A trustee is not permitted to commingle, or mix, any of their own personal funds with those in the trust;
  • The duty to safeguard: A trustee must keep trust assets, such as finds, secure and avoid theft. Because trust money may be invested online, a trustee should take reasonable measures to prevent the account from being hacked, which may include installing antivirus or antimalware software;
  • The duty to invest: all investment decisions must be made with the main objective being to earn more money. A trustee must exercise reasonable skill and care when determining which investments have a reasonable chance of earning money in order to serve as income for the beneficiaries; and
  • The duty of accounting: A trustee is required to make an account of and keep records for any and all transactions concerning the trust property. A trustee must keep records regarding expenses required to administer the trust, such as broker’s fees, as well as any money spent to improve the trust if the property therein is a physical object.

What if a Trustee Violates Their Duties?

If a trustee violates their duties, it is referred to as a breach of fiduciary duty. A breach of fiduciary occurs when a trustee does not do what the trust asks of them or intentionally does what the trust asks them not to do.

It is important to note that the trustee is held to a very high standard, and it does not matter why they breached their duty, only that it occurred. For example, suppose Thomas is in possession of Trust A funds and is supposed to deposit the funds into Trust A’s account.

If instead, Thomas deposits those funds into his personal account and uses them to purchase a new car, Thomas has misused the trust funds and violated his duty as the trustee. Even if Thomas plans to pay the trust account back or has already paid the trust account back, he has violated his fiduciary duties.

A breach of fiduciary duty typically results in the termination of the trustee position and repayment to the beneficiaries, or trust accounts, for the damages or loss. These cases do not involve criminal charges but are processed through civil claims court.

What are Some Common Disputes Involving Other People’s Money?

One common dispute involving other people’s money arises when the person holding it uses it for their own purposes. This is a clear breach of the fiduciary duty.

Most disputes involving OPM stem from the trustee breaching their fiduciary duty to a settlor and the beneficiaries. Another example may occur when a financier lends or gives money to a company in the form of a grant.

The majority of grants are not required to be paid back. However, they do often come with conditions.

For example, if the financier requires the company only to use the funds for a specifically stated research purpose. Failure to use the funds according to the conditions may result in a violation of the grant contract.

Do I Need an Attorney for Assistance with Other People’s Money Laws?

Having responsibility for another individual’s money is a very serious responsibility. Because of this, it may be helpful to seek advice from a skilled and knowledgeable estate attorney in your area to ensure that you are adhering to all relevant laws and requirements.

Your attorney can provide you with legal advice regarding handling the funds and represent you in court should any disputes result in legal action.

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