As the nation’s baby boomers continue to get older, more and more people will undertake the role of a fiduciary. This may be as an agent appointed through a power of attorney as an executor or administer of an estate or as a trustee under the provisions of a trust. As such, property and investments will need to be managed, accounting of the assets will need to be performed, taxes paid, and distributions of the income and principal will have to be made to beneficiaries. With more people being appointed as fiduciaries combined with our litigious society and uncertain economic times, enviably there will be an increase in fiduciary litigation. Many of these actions will be brought as surcharge actions, seeking to have the fiduciary found individually liable for damages incurred by an estate because of their breach of duty and negligence. These surcharge actions may consist of claims of exuberant fees, self-dealing, and mismanagement of the estate’s assets.

In Pennsylvania, a fiduciary agent is required to exercise common skill, judgment, and caution as a prudent person under the same circumstances as if they were managing their own assets. In re Estate of Denlinger, 449 Pa. 393, 396, 297 A.2d 478, 480 (1972). A fiduciary can be held to a higher standard if that person has specialized skill or expertise. Id. The same standard of care also applies in trust situations. Pennsylvania has enacted the Uniform Trust Act (“Act”). In trust situations, the Act requires the trustee to perform his obligations in good faith and in the best interest of the beneficiaries. 20 Pa. C.S.A.§7771. A trustee is also required to exercise reasonable care, skill, and causation when administering the trust. 20 Pa. C.S.A.§7774. The higher standard is also imposed upon a trustee if that person has specialized knowledge. 20 Pa. C.S.A. §7776.

Should the fiduciary breach his fiduciary duty, a surcharge action may be brought against him. A surcharge action is brought against the fiduciary for the damages sustained because of the breach. The person bringing the surcharge action has the burden and must establish that the agent breached the applicable fiduciary duty and that the damages are causal related to the breach. If the objector has established these requirements, then the agent must establish that the losses incurred are not a result of his breach of duty.

What It Means to You

While it is an honor to have someone request you be an executor/trustee, with this honor comes great responsibility and possible personal exposure. The appointment as an executor creates a duty to oversee the administration of the estate with competence. Careful consideration should be given prior to accepting or being appointed as the representative of an estate. Failure to adhere to the appropriate standard may cause damage to the estate and possibly result in liability against the fiduciary.

As an executor/trustee, you are required to properly manage, account for the assets, and properly distribute the assets. In order to minimize potential exposure and to avoid the appearance of self-dealing, a fiduciary should always keep trust assets separate and apart from personal assets, keep proper records and documents, keep beneficiaries up to date on the administration of the estate, and locate assets to ensure that they are protected until sold or distributed to inheritors. A fiduciary has a duty to ensure that his or her purely private interests are not advanced at the expense of the estate.

As a fiduciary, a person is entitled to be compensated for his time and effort. An executor fee should be reasonable and based upon the time expended to administer the estate. As such, it is critical that the fiduciary keep accurate logs of time spent on estate matters should the compensation be questioned. A fiduciary’s compensation is subject to court approval should a beneficiary or creditor bring a challenge.

The attorneys at Cipriani and Werner, P.C. have extensive experience in handling surcharge actions, removal actions, fee and compensation disputes, will contest, and other litigation involving estates. We represent beneficiaries, executors, trustees, and guardians in estate litigation matters as well as attorneys, accountants, and other professional in malpractice claims arising out of their fiduciary duties.