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In the context of estate law and planning, there are many roles people may find themselves in which make them a fiduciary. But what does that really mean? In this article, we’ll touch on the basics of fiduciary duties, and their roles and liability in the context of estate planning and administration.
Fiduciary duties arise when someone takes on a task or position which gives them a special relationship of responsibility and loyalty. In estate planning, this most often occurs when someone is appointed executor of an estate, or trustee of a trust. De jure trustees of presumed resulting trusts are also considered fiduciaries. There are many rules which govern what a fiduciary can or can not do that are set out in legislation, case law, and sometimes within an organization’s articles of incorporation. Generally, fiduciary duties relate to loyalty to a beneficiary or group like a company. Standard fiduciary duties can include:
There are many rules which govern the way a fiduciary must act and these are just some basic examples. To determine if a loss suffered by the beneficiary was a result of a fiduciary’s breach of duty, the courts will examine the nature of the act or omission, and will also consider previous court decisions on fiduciary duties.
Fiduciaries are liable for their personal acts or omissions which cause damage and were in breach of their duties. It is important for a fiduciary to understand that a failure to act can constitute a breach of their duty, so sometimes doing “nothing” can result in liability. However, a fiduciary should not worry that they will be held liable for any loss suffered by an estate or trust because there has to be a clear causal relationship between the breach and the loss in order for a claim to be accepted by the courts. If the fiduciary is found to have caused the loss through a breach, they will have to return funds to the trust to remedy the situation.
If the breach does not necessarily cause a loss to the trust, for example if the fiduciary made an unauthorized profit by way of their position as fiduciary, they can still be held liable. Most often, the remedy for unauthorized personal profit of a fiduciary is for the profit to be accounted for to the beneficiaries, and with the courts imposing a constructive trust over the assets. This essentially means that the fiduciary is responsible for informing the beneficiaries of all the details of the profit, and they are given a proprietary interest in the profit by operation of the law. Under a constructive trust, it is as if the fiduciary has been holding the profit for the benefit of the beneficiaries like the other assets in the trust. This breach is grounds for removal of a trustee (fiduciary), for more on this, read our article on removing a trustee from their position.
In estate planning and administration, the most common fiduciary roles are held by trustees of the estate and the estate’s executor. Trustees play an important role from when the estate is planned to well after the will writer’s death, as they are appointed to manage the assets of a trust. Their fiduciary duty is not always to the will writer, but to the beneficiaries of the trust that they manage. Trustees in estate law are often appointed in a will to hold funds or some other asset for a beneficiary until they reach a certain age or milestone in life, and the trustee must exercise due care in maintaining the asset until that time comes.
Executors of an estate also play an important fiduciary role in the administration of an estate. They are appointed in the will to see through the administration of the estate after the will writer’s death. They have numerous responsibilities and are ultimately responsible for paying out any debts the estate may have, and distributing the balance of the estate to its beneficiaries according to the will. They will handle almost all of the money in an estate, and must carefully adhere to their duties. At the end of the administration they have to account for all of the money that went in and out of the estate in a passing of accounts. They are fiduciaries to the beneficiaries of the estate and can also be held liable for a loss to the estate if it is caused by a breach of their duties, including the simple duty of care.
If you’re a beneficiary concerned that your fiduciary (executor or trustee) has breached their duties resulting in a loss, don’t hesitate to contact an experienced estate lawyer. Fiduciaries who breach their duties are liable for replacing any lost value to the estate that resulted from their breach, and we’ll make sure you’re recompensed fairly.