Many people consider it an honor to be named as trustee or executor over a loved one’s estate. It can be the ultimate sign of admiration and trust. However, serving in this capacity comes with a broad array of duties and responsibilities – obligations which a fiduciary may be legally required to perform or they could be subject to personal liability.
Executor and Trustee
An executor is the person appointed by the creator of a last will to carry out the terms of the will. Specifically, they are tasked with managing an estate through the probate process. A trustee is an individual that has been given the responsibility of managing property in a trust. For purposes of this article, we are specifically referring to a trustee tasked with administering trust assets after the death of the trust creator. Individuals and institutions, such as a bank or trust company, can typically serve in either of these roles.
Executor and Trustee Duties and Responsibilities
- Locating, securing, valuing, and managing trust or estate assets
- Identifying and notifying beneficiaries, including the obligation to keep beneficiaries reasonably informed of status of administration
- IRS reporting, which may include the deceased’s final individual tax returns, estate tax returns, or trust tax filings
- Accounting: tracking and reporting all income, expenses, distributions, and transactions
- Final distributions of assets to beneficiaries
- Duties specific to executors include (i) managing probate process, (ii) publishing notice to creditors, and (iii) opening and managing estate bank account
- Tasks more frequently associated with trustees are (i) investment of trust assets, (ii) establishing further trusts for beneficiaries, and (iii) filing a notice of trust
Fiduciary Liability
During the administration of an estate or trust, an executor or trustee owes a fiduciary duty to all beneficiaries. Running afoul of this duty can lead to personal liability.
Common situations where personal liability has been incurred include:
- Failure to abide by prudent investor standard. Ordinarily associated with trustees, the prudent investor rule holds that trustees are to invest and manage assets as a “prudent investor” would considering the purposes of the trust.
- Mismanagement of assets. This is a broad category but can include (i) payment of unenforceable debts, (ii) mixing personal assets with estate/trust assets, and (iii) unreasonable delay of distributions to beneficiaries.
- Favoritism. A duty of impartiality is owed to all beneficiaries, as the fiduciary cannot favor one class of beneficiaries over another. This may be especially true for trustees who may have to manage competing interests of current and remainder beneficiaries.
source: Ivan & Daugustinis Estate and Tax Attorneys – information updated as of 10.17.22
The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.
