What is a Fiduciary?
A fiduciary is a person or institution which has a confidential, legal, or ethical relationship with a person or a group. As a result of such relationship, the fiduciary must act in the best interests of the person or group to whom he owes a fiduciary duty. When a person or institution assumes the role of Executor, Administrator, or Trustee, they are entrusted with the care of money or property and owe a host of duties to the beneficiaries on whose behalf they serve.
What are Fiduciary Duties?
A fiduciary duty is an obligation to act in the best interests of another party. A fiduciary is held to high standards of loyalty, care, honesty, and full disclosure.
Duty of Loyalty
It is the duty of the fiduciary to administer the estate solely in the best interests of the beneficiaries. The fiduciary must minimize or avoid conflicts of interest and hold the interests of the beneficiaries above his own.
Duty not to Delegate
The fiduciary is under an obligation to personally administer the estate and is under a duty not to delegate to others acts that the fiduciary should personally perform, like engaging attorneys and other professionals, opening a bank account, collecting assets, overseeing the management of investments, and approving or rejecting claims. Naturally, the fiduciary may delegate professional tasks such as the preparation of tax returns to a professional.
Duty to Keep and Render Accounts
A fiduciary is under a duty to the beneficiaries to keep full and accurate accounts; and a beneficiary has the right to demand accountings as set out in the Estates Code or under the decedent’s Will.
Duty to Furnish Information
A fiduciary is under a common law duty to the beneficiaries at reasonable times to give complete and accurate information regarding the estate.
Duty to Exercise Reasonable Care and Skill
A fiduciary is under a duty in administering an estate to exercise the same care and skill as a man of ordinary prudence would use in dealing with his own property.
Duty to Take and Retain Control of Estate Property
A fiduciary must use the same care and skill that a person of ordinary prudence would use to preserve estate property.
Duty to Enforce Claims
A fiduciary is under a duty to take reasonable actions to collect claims that are due to the estate.
Duty to Defend
The fiduciary is under a duty to do what is reasonable, under the circumstances, to defend actions by third parties against the estate.
Duty to Avoid Co-Mingling of Funds
The fiduciary has a duty to keep estate property separate from other property, and to properly designate it as estate property. Not only is it the fiduciary’s duty to keep the estate property separate from the fiduciary’s own property, but also to keep that property separate from other estates or trusts the fiduciary may administer.
Duty with Respect to Investments
Because a personal representative’s primary responsibility is to collect estate assets, pay creditors, and distribute the estate, the personal representative will not typically actively manage investments. The personal representative cannot ignore the investments, however, as he or she does have the duty to preserve estate property. If the assets of the estate require active management in order to preserve value, or when the estate administration will continue for a lengthy time, the personal representative should oversee the management required in a prudent manner.
Duty to Treat Beneficiaries Impartially
When there are multiple beneficiaries of an estate, it is the duty of the fiduciary to deal impartially among the beneficiaries. A fiduciary may face tax elections and other situations that will require careful attention to impartiality.
Duty with Respect to Co-Fiduciaries
Unless the Will provides otherwise, all fiduciaries are under a duty to participate in the estate administration. Therefore, a fiduciary cannot properly delegate the acts required of the fiduciary to co-fiduciaries. It is also the duty of a fiduciary to use reasonable care to prevent other fiduciaries from committing a breach of trust. Pursuant to Texas law, any Executor or Administrator can act alone to bind the estate, except that all Executors must execute any conveyance of real estate. Nonetheless, Co-Executors and Co-Administrators should act in concert whenever possible.
When Should an Accounting be Filed?
In dependent administrations, Annual Accountings must be filed; and when the administration is to be closed, a Final Accounting must be filed with the court. In addition, in an independent administration, any person interested in an estate may demand an accounting from the personal representative after the expiration of 15 months from the issuance of Letters Testamentary or Letters of Independent Administration. Finally, once an estate has been fully administered, taxes have been paid, and the distributees of the estate are in receipt of estate assets, a personal representative serving independently may seek a judicial discharge via a declaratory judgment and pay from estate assets legal fees, expenses, and other costs incurred in relation to such declaratory judgment. Often, the court will require a full accounting of the estate to be filed before granting a judicial discharge.
Remedies for Breach of Fiduciary Duties
When breach of trust arises, the beneficiaries may pursue measures to remedy the breach. Such remedies may include removal without notice, removal with notice, and requiring the fiduciary to be bonded. When a serious breach occurs and the interests of the beneficiaries are damaged, the successor fiduciary or the beneficiaries may seek to be made whole by suing on the fiduciary’s bond, if the fiduciary is bonded, or by seeking recovery from the fiduciary directly.