A fiduciary is a person who stands in a position of trust to one or more other people typically with respect to the safeguarding or management of assets. For example, the person you name to carry out your wishes in your Will (Personal Representative) or under your Trust (Trustee) is a fiduciary. This is important to know because fiduciaries are held to a higher standard of care under the law and if they fail to live up to this standard they can find themselves in big trouble. When someone agrees to serve as a fiduciary, the primary goal should be to properly carry out the duties of the position. A good secondary goal is not to get sued while doing it.
If a fiduciary is looking for trouble, here are five actions he or she can take to find it (or conversely, five things you shouldn’t do if you want to stay out of trouble when dealing with Estates and Trusts).
1. Co-mingle the estate or trust assets with your personal assets. One of the best ways to incur personal liability for your service as a fiduciary is to deposit the estate or trust funds into your personal account and then treat those funds as your own. Co-mingling estate or trust funds with the fiduciary’s personal funds is absolutely prohibited. The correct way to title an estate or trust account is with the name of fiduciary clearly identified as Personal Representative or Trustee. For example, “Mary Smith, Personal Representative of the Estate of Lola Jones.”
2. Ignore the beneficiaries of a Trust or Estate. In my experience, one of the surest ways for a fiduciary to increase the likelihood that the beneficiaries will file a claim against him for breach of duty is to fail to communicate regularly with the beneficiaries. When that happens, the beneficiaries tend to leap to the conclusion that the fiduciary is doing something bad. It is often a lack of communication that brings disgruntled beneficiaries to my door seeking redress against the Personal Representative or Trustee. Failure to communicate with the beneficiaries is not only a violation under the Massachusetts Uniform Trust Code (MUTC) which specifically requires a Trustee to keep the beneficiaries informed about the administration of the trust and to promptly respond to a beneficiary’s request for information, it is also just not in the fiduciary’s best interest.
3. Disregard the instructions in the Will or Trust. The Personal Representative of an estate and the Trustee of a Trust usually have broad authority to deal with the estate or trust assets. However, they do not have the option to disregard the terms of the Will or Trust, even if they believe they are doing so for a good reason. For example, I have had fiduciary clients who told me that they made a distribution to someone who is not named in the Will because, ‘I know my mother would have wanted that.’ Or who decide they are going to rent out the house even though the Trust directs that is be sold. Big problem.
4. Don’t ask the beneficiaries for their input. As noted in number 3, a fiduciary has broad power to administer the estate or trust. Unless the Will or Trust instrument directs otherwise, this person decides when and at what price to sell real estate, which financial institutions and advisors to work with, how to invest the funds, and if and when to make an early distribution to the beneficiaries. However, just because the fiduciary has the authority to make all of these decisions without the input of the beneficiaries, does not mean that he or she should do so. If a goal of the fiduciary is not to be sued by the beneficiaries, then soliciting the input of the beneficiaries as to big decisions such as the sale of real estate, or at least notifying them promptly when a decision is made (see number 2 above) will go a long way toward achieving that goal. Some fiduciaries may even ask the beneficiaries to ‘sign off’ on a decision such as the listing price of mom’s house in order to avoid a later allegation that the Trustee was not acting in the best interest of the beneficiaries.
5. Keep sloppy (or no) records. If you want to make sure that you are liable to the beneficiaries for breach of your fiduciary duty, don’t keep a record of anything you do. One of the first responsibilities of a Personal Representative or Trustee is to determine the assets of the estate or trust and then notify the beneficiaries as to his or her findings. This is called the Inventory. The Inventory should identify each asset of the estate or trust and its respective value. Failing to timely provide the beneficiaries with an Inventory is a de facto breach of duty. In addition, a fiduciary is required to account to the beneficiaries for all financial transactions. This includes an itemization of the funds received by the estate or trust such as interest, dividends, tax refunds, etc. as well as a detailed record of disbursements such as payment of the decedent’s medical bills, expenses incurred to maintain real estate, attorney’s fees, and the fee paid to the fiduciary.
6. Go it alone. Here is bonus tip for fiduciaries who want to increase the likelihood they will be sued for breach of duty – don’t seek the advice of any professionals. Serving as a fiduciary is an enormous responsibility and carries with it many duties that will be unfamiliar to most people who are named to serve as Personal Representative or Trustee. Expenses such as legal fees, accounting fees, appraisal costs, etc. are paid from the estate, not from the fiduciary’s own monies. If you are in this position, do yourself and the beneficiaries of the estate or trust a favor and engage experienced professionals to represent and advise you.
Most people feel that being named as the Personal Representative or Trustee is a great honor. It means that person had the faith and confidence that you could perform the duties and responsibilities required by the job.
If you have been named as the Personal Representative of a Will or as the Trustee of a Trust contact the Dedham law firm of Samuel, Sayward & Baler LLC and let us guide you through the process so that you avoid the pitfalls that many first-time fiduciaries fall into.
Attorney Suzanne R. Sayward is a partner with the Dedham firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit www.ssbllc.com or call 781/461-1020.
© 2018 Samuel, Sayward & Baler LLC