Episode 322: Fiduciary Roles in Estate Planning and Probate

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As individuals take steps to prepare for their future, one of the more confusing areas for many are fiduciary roles in estate planning and probate. Questions about this topic can range from, “What is a fiduciary?” to “What are their roles?” To create a proper estate plan and create a trust, it is critical to first understand the answers to these questions to ensure that your wishes are followed and your assets are protected.

Fiduciary Roles in Estate Planning and Probate

Before we begin talking about fiduciary roles in estate planning and probate, it is important to review the definition of a fiduciary. This role is filled by a person who is willing to take on the highest legal responsibility one can have when it comes to taking care of another party’s assets and property. This means the fiduciary is a person who is willing to act on behalf of another individual in a legal capacity. A fiduciary agrees to put a client or beneficiary above any interests of their own, avoid related conflicts, and fulfill their legal duty in a manner that can be accounted for in a court of law.

A fiduciary trust involves a trustee who has fiduciary responsibilities to manage an individual’s assets and/or act on behalf of the individual when necessary. This is often used as an estate planning tool designed to help delegate inheritances and arrange for charitable contributions, among other things.

There are two primary types of trusts:

1. Intervivos trust. This type of trust is created immediately by simply transferring property to a trust or trustee for the benefit of one or more beneficiaries. An intervivos trust is created while a person is still alive. For this reason, it is sometimes referred to as a living trust.
2. Testamentary trust. This type of trust does not exist until the grantor dies, at which point there will be a set of provisions stated in the grantor’s will which then constitutes a trust agreement by appointing trustees, funding the trust with corpus or property, and determining how it will be distributed amongst beneficiaries (such as at a certain age, for the purpose of college, for the purpose of maintenance support standards, etc.).

When forming a trust, trustee(s) must be named who will have fiduciary duties.

Other fiduciary roles in probate and estate planning are executors and guardians. The executor is a person named in a testamentary will who will be the person in charge of administering the decedent’s estate – inventorying and dispersing property to decedents, filing tax returns on behalf of the decedent and the estate, and all other miscellaneous tasks. A guardian is typically a person (or a couple) named to take care of minor children, but a guardian can also be responsible for taking care of certain property or the testator, if they are not deceased, but simply incapacitated. It is not possible for a fiduciary to be both a guardian and an executor if the guardian role occurs while the testator or grantor is still alive. It is, however, possible to be an executor of the probate and estate and also be the trustee of a trust that is created out of it.

Responsibilities of a fiduciary in the trust of an estate could include:

• Adhering to all specifications and directions stipulated in the Declaration of Trust.
• Maintaining precise financial records to be used for taxes and to supply to beneficiaries.
• Investing trust assets when needed in a conservative manner that requires only a small risk.
• Relaying actions to the beneficiaries as stipulated in the trust.

The fiduciary does have a responsibility to get someone else involved if investments must be made to keep the money in the trust growing. In this respect, a trustee does have a prudent investor duty that comes with a certain level of discretion.

The duties of the executor include adhering to the decedent’s wishes and prioritizing the interests of the beneficiaries. This includes protecting the decedent’s assets, paying debts and taxes, as well as distributing the estate according to the terms of the will. Proper accounting and reporting to the probate court is also required.

When Fiduciary Duties Are Breached

The above levels of discretion for trustees are where issues can and do occur – and can manifest in the following ways:

• Using the trust’s or estate’s assets for personal gain rather than beneficiary gain.
• Comingling the fiduciary’s funds with the trust or estate funds
• Dispersing funds to one beneficiary more favorably than another beneficiary
• Allowing estate or trust property to be wasted, fall into disrepair, or not be invested wisely

A fiduciary’s responsibility is to protect the trust or estate. Therefore, in the case of a trust, it would be a breach of duty for the trustee to invest trust money into something simply because the trustee has access to it. This is primarily an issue for unsophisticated trustees who are anxious to support pet projects they like. It would also be a breach of duty for a fiduciary to use the trust money to work out their own deals and loan the money back and forth.

When appointing guardians, many individuals choose two guardians as fiduciaries—one to aid the person with doctor appointments, living arrangements, and medications, and the other guardian to control the assets and real property of the incapacitated person’s estate to make sure nothing is wasted. In the case where a fiduciary is the guardian of the estate of an incapacitated person, there may be issues with beneficiaries or family members. For instance, if a mother is allowing her two daughters to spend their mother’s money, a guardian can step in and stop this from happening so the mother will still have enough money left to provide for herself.

Fiduciary duty is the highest level of legal standard that a person can be held to under U.S. law. Fiduciaries are required to uphold a duty of care and a duty of loyalty to the beneficiaries of an estate or trust at all times. That is why it is important to use discretion when choosing who will be named as your executor, trustee, or guardian.

Unfortunately, and in spite of a grantor’s best effort to choose a trustworthy fiduciary, breach of fiduciary duty is not uncommon. These types of situations are handled by law firms annually. Beneficiaries who feel they have been wronged by trustees can make a claim against a fiduciary and enlist legal representation.

How An Attorney Can Help with Understanding Fiduciary Roles in Estate Planning and Probate

Before creating a trust for estate planning and probate, it is wise to consult with an estate planning attorney. Legal counsel can help educate you about the types of trusts and which might be the best for your specific needs and goals. This can go beyond establishment of the trust and extend to other financial areas such as taxes.

All too often, individuals who use inexperienced family members or trustees as fiduciaries can experience unnecessary complications that could potentially have been avoided by enlisting the help of reputable legal counsel.

Beneficiaries of trusts and estates who feel they are not receiving distributions as a grantor intended can also enlist the help of an attorney to determine if the trustee or executor is acting according to legal standards and best practices. An experienced attorney can also help beneficiaries bring claims to remove a trustee or executor, so the beneficiary can access assets that are rightfully theirs.

For more information about fiduciary roles in estate planning and probate, make an appointment for a consultation with a reputable estate planning attorney who has demonstrated proven experience and success in this particular area of law.

By Harold "Hap" May, P.C. on February 23, 2024   /   The Legal Play Podcast   /   Leave a comment