Serving as a fiduciary during estate or trust administration involves a degree of risk. Personal representatives or trustees are subject to a fiduciary duty to the beneficiaries of the estate or trust. They generally have an obligation to follow the instructions included in estate planning documents, as well as a responsibility to comply with the law.
Serving as a fiduciary does come with certain risks, including liability for financial mistakes and the possibility of litigation in probate court. How can those serving as fiduciaries protect themselves from liability and legal action accordingly?
1. By understanding their obligations
Learning about the law and carefully reviewing trust or estate planning documents is important for personal protection. The failure to follow instructions or comply with the law could lead to litigation and liability. Fiduciaries often need assistance when reviewing documents and learning about their personal obligations.
2. By communicating effectively
Trustees generally have to provide regular accountings to beneficiaries. Personal representatives have to officially communicate with not just beneficiaries but also creditors and even tax authorities. Recognizing who needs information about an estate or trust and providing it in a timely fashion are both steps that can limit the exposure of a fiduciary.
3. By maintaining thorough records
If controversy does arise during trust or estate administration, proper documentation can make all the difference. Personal representatives may need to retain records of when they sent notices to different parties. They also generally need to account for how they distributed estate resources and the outcome of any liquidation efforts.
Frequently, personal representatives and trustees also benefit from having the support of an attorney who helps protect them throughout trust or estate administration. Being proactive about ensuring personal protection can reduce the risk that comes with a fiduciary position.
