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Fiduciary Obligations Related to Estate Planning and Administration

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When an individual dies, his or her estate has to be administered, debts settled and assets distributed. Often these duties fall to a fiduciary such as an attorney, a trustee, a personal representative, an administrator or an executor. In the context of wills and trusts, a fiduciary holds a position of trust and is responsible for holding and managing property that belongs to the beneficiaries. Fiduciaries have certain legal obligations to the estate's beneficiaries, including a duty of care and duty of loyalty. If a fiduciary violates these duties, he or she may face civil or disciplinary action. If you are a beneficiary of a trust or will, you should know what obligations a fiduciary owes you and what constitutes breaches of those duties under Michigan law.

If a will appoints a personal representative, that personal representative has a fiduciary obligation to the decedent's devisees (often referred to as beneficiaries). The personal representative’s basic duties are to distribute the assets and pay any debts. Often, the personal representative will open a checking account in the name of the estate to better effectuate distributions and payments, as well as to keep an accurate accounting record. The personal representative has to assess the fair market value of the assets in case of an estate sale. Also, the personal representative should file any required tax returns on behalf of the estate. Personal representatives must maintain reasonable communication with the beneficiaries regarding estate issues. If the personal representative mismanages the estate through failure to timely settle debts, self-dealing or failure to assess and receive fair market value for estate assets, the beneficiaries may be able to have a court legally discharge the personal representative and go after the personal representative's personal assets to cover any losses to the estate's value.

In the cases of trusts, trustees must manage the trust assets according to the trust's terms and for the benefit of the beneficiaries. A trustee owes the duties of loyalty and impartiality to all beneficiaries. An individual or a trust company can act as trustee, and the fiduciary obligations may vary depending upon the size and extent of the estate. Trust assets may be tangible property, financial holdings or real estate, but just as in the case of an estate executor, the trustee is obligated to assess the overall value of these assets. Usually, the trustee obtains a tax identification number for the estate and files the requisite tax returns. The trust administrator must also make prudent investments with trust funds to avoid loss and increase income to cover expenses and taxes. Whereas the execution of an estate may continue for a certain length of time, trust administration may be terminated based on a specified termination date or when a beneficiary reaches a certain age. During the tenure of the trust, the trustee must provide an annual income statement (Schedule K-1) to each beneficiary who receives taxable income from the trust. Also, each beneficiary is due a trust accounting. If the trustee neglects any of his prescribed duties, or causes a loss of trust value, he or she may be liable for breach of fiduciary duties. The trust beneficiaries can attempt to hold the trustee liable and go after his or her personal assets to satisfy any loss.

Attorneys are subject to codes of ethics and professional conduct, and if they violate these codes, they may face disciplinary actions, including possible disbarment. Generally speaking, estate planning attorneys must be reasonably competent enough to handle entrusted legal matters such as drafting testamentary and estate documents (including wills and trusts) and providing the requisite preparedness and administration to carry out the goals of their clients as well as to protect the rights of the beneficiaries. Falling short of these minimum competencies may amount to malpractice. Estate attorneys are obligated to keep the estate assets safe. Additionally, in most cases, an estate lawyer has to divulge any conflict of interest that adversely affects the beneficiary, particularly if the attorney will receive any gifts or remunerations under the decedent's instrument. Fraud or other illegal acts such as commingling estate assets with the attorney's own assets amount to misconduct which can subject the attorney to disbarment. A beneficiary can request an accounting of assets and how these assets are to be distributed. If the beneficiary believes that the attorney has violated any professional or ethical code, he or she can generally file an ethics complaint against the attorney. In addition, it may be possible to sue the attorney for legal malpractice.

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