As an estate planning attorney, I often have clients ask me about the fiduciary duties owed by executors (also known as personal representatives) and trustees. These are two important roles in your estate planning, and it is essential to understand the responsibilities that come with them.
Executors and trustees are both held to the highest fiduciary standard of care. They must act in the best interests of the beneficiaries, especially if it means putting their own interests aside. As fiduciaries, they must avoid any conflicts of interest. For example, they should not invest the estate or trust assets in their own businesses or lend money to themselves. Executors and trustees must keep the beneficiaries informed of their actions and decisions, and they should provide them with regular accountings. Executors and trustees may be held personally liable for any losses that the estate or trust incurs as a result of a breach of their fiduciary duty.
A fiduciary duty is a legal obligation to act in the best interests of another person. Executors and trustees are both fiduciaries, which means that they have a legal obligation to act in the best interests of beneficiaries of the estate or trust.
Fiduciary Duties of Executors
The fiduciary duties of executors include:
- Administering the estate according to the terms of the decedent’s Will. This includes marshalling and valuing the assets of the estate, paying debts and taxes, and distributing the remaining assets to the beneficiaries according to the terms of the Will.
- Acting in the best interests of the beneficiaries. This means making decisions that are in the best financial interests of the beneficiaries, even if those decisions are not in the best interests of the executor personally.
- Exercising due care and diligence. This means managing the estate assets carefully and prudently, and avoiding any actions that could put the estate at risk.
- Keeping accurate records. This includes keeping track of all income and expenses of the estate and preparing regular accountings for the beneficiaries (and possibly the local Probate Court having jurisdiction over the estate) and for proper tax reporting.
The fiduciary duties of trustees are similar to those of executors, but they also include the following:
- Investing the trust assets prudently. This means investing the trust assets in a diversified portfolio of investments that are likely to generate income and grow in value over time.
- Preserving the trust assets for the benefit of the beneficiaries. This means avoiding any actions that could put the trust assets at risk, such as investing in speculative investments or lending money to risky borrowers.
- Distributing the trust assets to the beneficiaries according to the terms of the trust agreement. This means following the instructions of the trust grantor, even if those instructions are contrary to the trustee’s personal views or wishes.
How to Fulfill Your Fiduciary Duties
There are a few necessary steps you can take to fulfill your fiduciary duties as an executor or trustee:
- Become knowledgeable about the laws that apply to your role. There are many state and federal laws that govern the administration, investment, and distribution of estates and trusts. It is important to become familiar with these laws so that you can comply with them.
- Seek professional advice. I recommend you hire a team or professionals – estate planning attorney, investment advisor and CPA – to assist you in discharging your fiduciary duties.
- Be organized and keep accurate records. This will help you to keep track of all your responsibilities and to avoid any mistakes.
- Be honest and transparent. You should keep the beneficiaries informed of your actions and decisions, and you should be honest with them about any potential conflicts of interest.
If an executor or trustee breaches their fiduciary duties, the beneficiaries have legal remedies. These remedies may include:
- Removal of the executor or trustee. The beneficiaries may be able to petition the Court to have the executor or trustee removed from their position.
- Restitution. The beneficiaries may be able to recover any losses that they incurred as a result of the executor or trustee's breach of fiduciary duty.
- Punitive damages. In some cases, the beneficiaries may be able to recover punitive damages from the executor or trustee for losses due to gross negligence or willful misconduct.