Understanding fiduciary duty is paramount for anyone tasked with managing another person’s affairs, whether it’s executing a will, administering a trust, or making decisions on behalf of someone else. In the intricate landscape of estate planning, fiduciary duty forms the cornerstone of trust and confidence between individuals and their chosen representatives.
In this blog, we’ll be giving a defining guide for executors, trustees, and agents and providing clarity on the responsibilities that accompany these critical roles. You will gain a better understanding of the true meaning of fiduciary duty, as well as the specific obligations of each position.
This guide aids to empower you with the knowledge and understanding necessary to navigate your role with diligence and integrity. Whether you are beginning your journey of estate administration, are currently acting as a trusted agent for a loved one, or are considering volunteering for someone in this way, it is essential to understand fiduciary duty in order to ensure that their assets are protected and their best interests are served.
Fiduciary Duty Defined
Fiduciaries are individuals or corporations that act on behalf of others and who are expected to put their clients’ best interests above their own. Fiduciaries have a duty to preserve good faith and trust, and are legally and ethically bound to act in the other’s best interests. Most of the time, fiduciaries are tasked with managing finances and assets; executors and trustees are examples of this. Other times, such as in the case of a healthcare proxy, the fiduciary may simply be responsible for the general well-being of another.
When you accepted your role (or if you are considering accepting a role) as a fiduciary, you agreed to act in the best interest of the primary party and act in an ethical and legal manner at all times when it comes to their affairs. It is especially important to ensure that no conflicts of interest keep you from performing your duty. This happens when you have personal interests that prevent you from performing your role and making unbiased decisions.
Fiduciary duties exist in a variety of business relationships beyond those related to estate planning, including:
- Trustee and beneficiary
- Corporate board members and shareholders
- Executors and legatees
- Guardians and wards
- Promoters and stock subscribers
- Lawyers and clients
- Investment corporations and investors
- Insurance companies/agents and policyholders
Roles And Responsibilities Of Executors, Trustees, And Agents
These three fiduciaries serve separate and distinct purposes, so their roles and responsibilities are not the same.
A trustee is the person in charge of a revocable living trust. In many cases, the principal (creator of the trust) can be the trustee of their own trust, but it is recommended that they also name a successor trustee in case a tragedy or emergency prevents them from doing the job. A trustee has obligations to those named as beneficiaries of the trust which include providing an accounting of income and expenses, filing tax returns, monitoring investments, and more. This is typically a long-term position that may last for several years, depending on the terms of the trust.
An executor is tasked with handling the estate of a person after they pass away. They must collect assets subject to probate, pay debts, and distribute the rest of the assets according to the decedent’s will. Though a person may choose the same person to be their successor trustee and executor, if they choose two different individuals, their duties do not intersect with each other. This position lasts for a much shorter period of time, usually around 12 to 18 months, or as long as it takes them to complete their tasks and the court to discharge them.
An agent – or the person who has power of attorney for another – acts on behalf of the principal in whatever capacity the document specifies. There are several different types of power of attorney, including durable, healthcare, financial, and more.
Fiduciary Duty Of Trustees And Executors
California probate code requires trustees and executors to perform the following fiduciary duties:
- Duty to administer trust or estate
- duty of loyalty to beneficiaries
- Duty to deal impartially with beneficiaries
- Duty to avoid conflict of interests
- Duty not to undertake position adverse to the trust of estate
- Duty to take control of and preserve property
- Duty to insure property
- Duty to make estate or trust property productive
- Duty to keep property separate and identified
- Duty to enforce claims against estate or trust
- Duty to defense actions against estate or trust
- Duty to not delegate
- Duty to act in unanimity with co-executors or trustees
- Duty to use special skills
Agent’s Fiduciary Duty
Because power of attorney only allows the agent to act in the manner specified in the document, their fiduciary duties may vary, but generally include:
- Duty of care to use due diligence in making decisions, providing counsel, or taking action
- Duty of loyalty to not represent someone else with a conflict of interest
- Duty of good faith to obey the law in their dealings on the principal’s behalf
- Duty of confidentiality to not disclose any information without the principal’s consent
- Duty of prudence to take all due care in identifying risks and weighing options before taking action
- Duty to disclose information that would affect the well-being of the principal
Challenges Faced By Executors, Trustees, And Agents In Fulfilling Fiduciary Duties
Executors, trustees, and agents face numerous challenges in fulfilling their fiduciary duties, primarily due to the high standard of care and legal responsibilities associated with their roles. Their tasks are demanding but essential, and require meticulous attention to detail and diligence. Some possible pitfalls include:
- Managing and distributing assets in accordance with the settlor’s wishes or the terms of the trust of power of attorney
- Making sound financial decisions
- Navigating legal requirements
- Ensuring compliance with state and federal regulations, and staying up to date with their changes
- Encountering conflicts of interest when beneficiaries have competing priorities, or when personal relationships are involved
- Keeping accurate records
- Maintaining transparency
- Communicating effectively
- And more!
Trust Hayes Law Firm To Help You Remain Compliant In Your Fiduciary Duties
If you are an executor, trustee, or agent who is struggling to perform their duties or are unsure of how to do so and need a helping hand, you should contact our firm as soon as possible. We can assist you in trust administration, probate matters, and more! Our lead attorney, William Hayes, has over 40 years of experience and can navigate you through your duties effectively and efficiently. Call today to schedule your free initial consultation and learn more about how our team can serve you.
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