When preparing a will, one of the big decisions is who to appoint as executor. This is the person or firm that you are putting in charge of taking your estate through a probate court. If you pass away without a will, an administrator is appointed in this role. Why is choosing this representative such a big decision? Because the wrong executor or administrator has the capacity to devastate your estate. Your life’s work and thoughtful planning to provide for your loved ones can all be for naught if they mismanage your estate.
Duties of the Fiduciary
Executors, trustees, and administrators — referred to as fiduciaries — have a legal duty to manage an estate or trust in accordance with the wishes laid out in the will (or the terms of the trust) and the relevant state and federal probate laws. They are required to perform their duties with a high standard of care and to operate in good faith. In fact, two of the legally recognized duties are a duty of care and duty of loyalty. The duty of care involves managing the estate with a reasonable standard of care. The duty of loyalty means that the fiduciary must act with the interest of the beneficiaries in mind, not their own self-interest or profit.
Unfortunately, this doesn’t always happen. Sometimes, due to negligence, incompetence, or malice, a fiduciary will breach their duty and fail to carry out the wishes of the deceased. This can manifest itself in a wide range of misconduct, including unreasonably poor investments, wasted money, failure to pay creditors or the IRS, losing or destroying assets, self-dealing, and stealing. When a beneficiary believes that the fiduciary has breached their duty and that the estate has been harmed; thus, they may file a legal action against the fiduciary.
Consequences for Breach of Fiduciary Duty
When a court finds that there has been a breach by the fiduciary, it has the discretion to impose financial consequences. Some of the factors that the court will consider are: how to make the estate whole; and the reasons for and nature of the breach. Common remedies include:
- The fiduciary has to repay the estate. Referred to as a “surcharge”, the court can order the executor or administrator to replenish the estate based on the amount that was improperly waster, spent, or lost.
- The court can deny fees to the executor or administrator. Normally, the fiduciary records and submits their time and costs to the court, and are entitled to be paid for their services. However, if the court finds that there has been a breach of duty, the executor does not get paid.
- The court can award punitive damages or even remove the fiduciary. These are the more extreme remedies, but may be necessary if the breach is egregious.
Are you planning your estate? If you are, please do not underestimate the importance of choosing a proper executor. Contact me for a consultation and we can discuss your options for an executor. Are you are a beneficiary of an estate? Do you believe that the executor, administrator, or trustee is improperly managing the estate? We can help you as well. I will thoroughly examine your situation and advise you on whether you have a breach of fiduciary duty claim. You can reach The Law Offices of Robert S. Thomas by phone at 847-392-5893 or visit our website to set up a consultation.