In legal terms, Other People’s Money (“OPM”) refers to any instance in which one party is entrusted with holding or keeping money for another party. The holding party would usually hold the other person’s money for a specified amount of time, and for a specific reason. The most common example of this would be a person seeking to transfer money to a recipient, and does this through the use of a trustee.
In this example, the trustee would be a non-interested third party tasked with holding the funds until the specified time for transfer. The person who owns the trust property that is to be distributed is known as the settlor.
A trustee may be necessary in cases involving a donor who does not want the recipient to immediately obtain the money; an example of this would be if they want the recipient to graduate college first. The trustee would have various duties involving the other person’s money that they are holding. Some other examples of when a person may hold other people’s money are when people put their money in a bank, or when a donor invests funds in a company for a small business grant.
What Are Some Other People’s Money Laws?
Other People’s Money is closely related to securities, or, a variety of interests involving an investment. The return of such an investment must be primarily or exclusively dependent on the efforts of a person other than the investor. Securities law refers to multiple federal laws and regulations which serve to govern the sale, purchase, and create security interests.
In the United States, there is one agency with the sole responsibility of enforcing securities law. That is the Securities and Exchange Commission, or “SEC.” The SEC protects investors, as well as maintains the integrity of the securities markets. This is accomplished by requiring that public companies disclose all meaningful financial information to the public, as well as other relevant information, so the public can properly evaluate security investments.
A nongovernmental organization, the Financial Industry Regulatory Association (“FINRA”), exists to “safeguard the investing public against fraud and bad practices.” FINRA both writes and enforces the rules that govern registered brokers and broker-dealer firms in the US. The following includes some of what FINRA regulates:
- The trading of equities;
- Corporate bonds;
- Securities futures; and
What Are Some Common Trustee Duties?
All trustees have a fiduciary duty towards the trust’s beneficiaries. Fiduciary duty refers to a special duty owed by one party to another, which is imposed by state law. As a trustee is a person who holds legal title to the trust property, the trustee has the power to transfer the trust property to the beneficiaries according to the instructions provided by the settlor in the trust.
A trustee’s fiduciary duties typically include:
- Duty of Loyalty: All trustees are to ensure that the beneficiaries’ interests in trust property are protected. As such, trustees are not to take any action that would favor themselves while also impairing those interests;
- Duty of Care: Trustees are responsible for determining when, how, and what to invest, if the settlor has placed money in the trust that is to be invested. These decisions must be made with care and diligence, and they must be reasonable;
- Duty to Separate Funds: This duty is similar to the duty of loyalty. Trustees may not mix or commingle their own personal funds with those of the trust;
- Duty to Safeguard: Trustees are required to keep trust assets, such as money, secure in order to avoid theft. As trust money is frequently invested online, the trustee should take reasonable measures to prevent a trust account from being hacked. Such measures could include installing antivirus and antimalware software;
- Duty to Invest: All investment decisions must be made with the chief objective being to earn money. Trustees must exercise reasonable skill and care when deciding what investments have a reasonable chance of earning money in order to serve as income for the beneficiaries; and
- Duty of Accounting: Trustees must make an accounting of, as well as keep records for, all financial transactions that concern the trust property. Trustees are to keep records regarding expenses required to administer the trust, such as broker’s fees, as well as money spent to improve the trust if the trust property is a physical object.
What Are Some Common Disputes Involving Other People’s Money?
A common dispute involving Other People’s Money occurs when the person holding the money uses the funds for their own purposes. This is clearly a breach of their fiduciary duty; most disputes involving OPM stem from a trustee breaching their fiduciary duty to the settlor and the beneficiaries.
Another example involves a financier lending or giving money to a company in the form of a grant. Most grants do not need to be paid back; however, grants often come with conditions. An example of this would be a financier requiring a company to only use the funds for specifically stated research purposes. Failing to use the funds according to their agreement could result in a violation of the grant contract.
Do I Need an Attorney for Assistance With Other People’s Money Laws?
Being responsible for another person’s money is a serious responsibility. As such, you should consult with a skilled and knowledgeable estate attorney to ensure you are adhering to all relevant laws. An experienced estate attorney can provide you with legal advice regarding the matter, as well as represent you in court should any disputes result in legal action.