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Tuesday, March 13, 2018

Top Five Traps to Avoid When Acting as a Fiduciary

Let’s face it, not all family members see eye-to-eye on all issues, and any probate attorney will tell you that underlying issues between family members usually do not get better after the death of a loved one. In fact, issues among family members often get worse when there is real money at stake. Even families with amicable relationships can become adversarial due to issues which arise in a probate or trust administration. An experienced probate attorney will be able to provide guidance to a Personal Representative or Trustee by anticipating and mitigating potential and perhaps even some inevitable disagreements among beneficiaries.

Here are five of the most common litigated issues that can come up in a probate or trust administration, and some tips on how to avoid potential landmines.

Number 1: Share While Staying In Charge

The probate and trust administration process can be very complicated and technical. Many times, beneficiaries do not feel that they are receiving adequate information regarding the estate or trust proceeding. Certain notices are required by Florida law to be sent out to the beneficiaries, but those notices often do not provide adequate . Many times, depending on the facts and circumstances, it is beneficial to provide additional information to beneficiaries to keep them involved in the process, while still making clear that the Personal Representative and Trustee will autonomously make decisions on behalf of the estate and trust. An experienced probate and trust attorney will be able to guide the fiduciary through the process to ensure that all requirements are met, and while also anticipating and mitigating potential conflicts.  

Number 2: Where There's a Will, There's a Way (to argue)

In an estate administration, an action to contest the Last Will and Testament might be brought by a disinherited heir or by a beneficiary who feels that they are not getting their rightful share of the estate. The person contesting the Will could allege that there are issues with the execution of the Will, or could argue that the decedent was under undue influence or was not competent at the time the Will was executed. Whether or not the claim is valid, the result could be a drawn-out litigation which will inevitably cost all parties involved a significant amount of time and money. Care should be taken at the onset of the probate to establish the Will and make sure Statutes of Limitations run in order to avoid a Will challenge. 

Number 3: Know Who You Are Dealing With

Occasionally, the beneficiaries do not agree with the appointment of the person acting as Personal Representative or as Trustee. Acting as a fiduciary is time consuming and not for the fainthearted, especially if there are anticipated disagreements among the beneficiaries. From the estate planning prospective, choosing the right fiduciary can be one of the most important decisions made in the estate planning process, and in many cases, should be discussed in advance of death with the fiduciary and the decedent’s family members to prevent future conflicts. Occasionally, a person appointed as a fiduciary will decide that they do not want the responsibility and will decline to act. Other times, the person appointed to act cannot handle the responsibility or is not the correct person for the position based on family dynamics, but chooses to serve because it was the intent of the decedent. Underlying family conflicts and emotions can surface regarding “who dad wanted to be in charge.” We have seen this situation play out on many occasions. The fiduciary, often acting with good intentions, is subjected to scrutiny and criticism by the beneficiaries, which can easily dissolve into costly and time intensive litigation. For this reason, it is imperative that the fiduciary protect himself or herself by engaging competent legal counsel at the outset, who can ensure that the fiduciary is complying with the letter of the law.  

Number 4: Walk the Straight and Narrow

A beneficiary or other person interested in the estate or trust alleges that the Personal Representative or Trustee is not acting in the best interest of the estate or trust. As fiduciaries, the Personal Representative and Trustee must be unbiased and cannot favor one beneficiary over another, or even favor a beneficiary over a creditor. Often, the Personal Representative or Trustee is also a beneficiary, so it is critical that there is no implication that he or she is acting with his or her best interest in mind. Unfortunately, we have seen litigation arise where a Personal Representative or Trustee acts with good intentions but does not consult with an attorney before making a major decision on behalf of the estate or trust. It is not surprising when disagreements result among the beneficiaries regarding how to dispose or certain assets which are not specifically mentioned in the decedent’s will or trust. For example, assume an unmarried decedent dies leaving his estate and trust to be divided equally between his three adult children. Let’s further assume that the decedent’s will and trust are silent with regards to who will receive his vacation home in the Keys. By default, the three children will ultimately become equal owners of the property. The decedent’s daughter is appointed as the Personal Representative and as Trustee, and is considering selling the property and investing the proceeds since the real estate market is at an all-time high, and she has received multiple offers above fair market value. The decedent’s sons on the other hand would like to take the home as a part of their inheritance. Depending on the facts and circumstances, an experienced attorney may be able to structure a creative solution which makes all parties happy, while still protecting the interests of the Personal Representative and Trustee.

Number 5: Engage a Competent Team

Sometimes the beneficiaries do not agree with how the estate or trust assets are being invested. This is one of the most common reasons for a “breach of fiduciary duty” claim against a Personal Representative or Trustee. As fiduciaries, the Personal Representative and Trustee must prudently invest the estate and trust assets. The fiduciary is not expected to be an expert in the law or in investments and should engage a team of advisers to assist with the process. Generally, the fiduciary should engage an investment adviser with a sound track record of investing. The fiduciary is responsible for selecting the investment adviser, ensuring that the trust assets are invested in a prudent manner and monitoring the portfolio’s performance at reasonable intervals. However, things can become complicated when the beneficiaries have conflicting interests in how the assets are invested. For example, it is common for a trust to provide that the surviving spouse will receive all income of the trust during his or her life, and upon the spouse’s death, the remainder of the trust will be distributed to the decedent’s children. In this case, the Trustee will need to ensure that the spouse is receiving sufficient income from the trust, while still preserving the trust principal and hopefully growth for the remainder beneficiaries.

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