Family members and friends are often asked to serve as the administrator or “fiduciary” of a Will, Trust, or estate of an incompetent person. These include the titles of Executor or Personal Representative named in a Will, Trustee of a trust, or Conservator of an incompetent person. Each appointment brings with it both liabilities and responsibilities that the appointee should be aware of in advance.
A “fiduciary” legally owns and has control of the property to be held, distributed, and otherwise managed for the benefit of others. Often times, the fiduciary may act for its own benefit if also named as a devisee or beneficiary. The terms by which the fiduciary completes its duties is contained in the Will or Trust, and if there is no document or the terms are absent, then by legal statute or regulation. Fiduciaries usually have wide discretion and authority to make decisions, but unless exempted by document terms or Court order, often must adhere to rules involving prudent investments, not be self-serving in distributions (unless specifically allowed to do so in the document), and any other specific terms in the document. Failure to do so can cause the fiduciary to have personal liability and responsibility to pay back the beneficiaries from his/her own funds.
Some fiduciary duties require a “bond”. A bond is basically a promise or guarantee that if the fiduciary does not properly perform its duties and there is a loss to the assets being handled, then the promisor of the bond can be legally required to reimburse the loss from its own funds. Probate court procedure requires a bond to be filed in each instance. Sometimes no bond is required, but the fiduciary would still remain personally liable for improper management as a matter of law.
So, you might be saying to yourself, “Why would I want to take on this liability”? First, individuals do it out of a sense of duty or loyalty to the individual that makes request. Second, most fiduciaries know, or at least initially feel, that they would never do anything wrong that would cause liability. Third, since many family fiduciaries are also beneficiaries, then they are merely doing something for themselves and other family members by wearing two hats.
However, in addition to the liability issues, there are other personal issues to consider before accepting the responsibility. A recent article in the AARP Money Newsletter described some of those concerns.
“Do you have the time?” You’re being asked to do something that you have never done before. There is a learning curve, and it usually takes substantially more time than expected rather than less.
“Do you have the skills?” Organization is a key skill. You often need to understand how financial accounts and accountings operate, and keep very good written records.
“Do you have the temperament?” As we all know, money can instantaneously change relationships. The sibling or other beneficiary who never lifted a finger to help the decedent of the estate or grantor of the trust may be first in line making demands on the fiduciary, or maybe worse, be the fiduciary and show terrible discretion or partiality in managing the property or funds.
“Do you know the rules?” Each fiduciary position has its own set of rules. Fiduciaries often retain an attorney to explain these in advance so that they fully understand their duties and responsibilities and act accordingly. Others delegate authority to the professional to do the work from the onset. Sometimes, the individual creating the document appoints a professional to be the fiduciary, ensuring that children and other relatives not be burdened, the job will be done more efficiently and often less expensively due to avoiding errors, and family harmony be maintained.
Regardless of the path that you take, good legal advice in advance is key to beginning, administering, and completing the job as fiduciary. Winston Law Group has years of experience acting as and advising fiduciaries. If you are asked to serve as a fiduciary, meet with us before you make your decision.