Pitfalls of a Fiduciary

Your client has just been appointed as a fiduciary by the court to manage the estate of a family member, friend or co-worker. Most fiduciaries are eager to help, and the duties appear to be manageable. But then once the estate administration begins, it can often be more complex or time consuming than anticipated.

A fiduciary has many responsibilities, including an annual accounting to the court of everything that comes into and flows out of the estate.The court will determine whether the assets have been properly managed. Failure to adequately manage and protect the Estate assets may result in personal liability to the fiduciary and a malpractice claim against the attorney.

Some pitfalls to be mindful of when advising a Fiduciary:

  • Avoid use of an ATM card for an Estate. Instead, open a checking account in the name of the Estate. Cancelled checks are the best record of how money from the Estate is spent.
  • Insist on being consulted before any money is spent from the Estate. This includes paying any creditors of the Estate. Expenditures may need court approval. Payments made in error or unauthorized expenditures may result in personal liability.
  • Make sure the fiduciary knows to consult with you before making any investments or taking any other financial action regarding the Estate to ensure they are legal and proper. In many states, investments in anything other than FDIC insured bank accounts or U.S. Government backed obligations is prohibited by law without specific approval from the Court.
  • Keep the Estate’s property separate from the fiduciary’s. Never co-mingle the Estate’s funds with personal funds. Failure to keep these separate could be a criminal offense.
  • Never delay in reporting to the court. The result may be personal liability for losses to the Estate.

Things a fiduciary should always do:

  • Keep all receipts, deposit slips and other financial documents. Failure to maintain these records may result in personal liability.
  • If your client is unable or unwilling to perform the fiduciary duties diligently, to avoid personal liability and/or potential criminal charges you may ask the Court to release your client from his/her fiduciary responsibilities.

The role of a fiduciary is an important responsibility. It requires personal commitment, attention to detail and good record keeping. Active and ongoing counsel of an attorney is critical. Remember, a fiduciary may be personally liable if his/her actions cause damage or loss to the Estate, and may result in a malpractice claim against the attorney.

For more information, contact Kim Edgar, Vice President of Surety Underwriting at 1-877-553-6376