Executor-Duty of Fidelity

1. The Duty of Loyalty.         

The most fundamental duty you owe as an estate’sexecutor is loyalty. The relationship between you and each of the estate’s beneficiaries arises out of the very nature of your duties as executor. Every action you take must be for the benefit of those individuals. Confidentiality is inherent in the duty of loyalty. You should never disclose information about the estate or its affairs to unauthorized persons. As an executor, you must never place yourself in a position that might favor your own personal interests over the interests of the beneficiaries you are representing. You must carefully and constantly avoid conflicts of interest. Aside from a reasonable fee for the services you are  rendering, you must not derive any extra personal financial or tax advantage from, or realize a profit in, dealing with the estate. Today, many attorneys draft wills and trusts that explicitly acknowledge that the fiduciary may have related interests, and these documents often allow the fiduciary to engage in self dealing. This can be useful where family members are each other’s fiduciaries and together own interests in real estate or businesses.

2. Duty of Prudence. You have a duty to exercise care, diligence, and prudence in dealing with the estate’s property. Your conduct will be considered reasonable if you act as a “prudent man” would act. This “prudent man” theory means that you must act with the care and skill that an ordinary prudent man would exercise in his or her own affairs. The duty of prudence is discussed in Virginia Code primarily in regards to investments. 

3. Preserving the Assets. You are under a duty to preserve and protect the assets in your custody. This is particularly important in the case of assets such as real estate, household furniture, furnishings, and coin, stamp, art, and other collections. You are under a duty to provide adequate security and protection for these items, so it may be wise to have an insurance agent review some or all of the estate’s ssets and immediately obtain sufficient insurance coverage where required. You may be held personally liable or accountable for any loss that occurs on uninsured or under  insured assets.

4. Conduct in Investing. With regard to investing, your first duty is to protect capital and avoid undue risk. But you are also under a duty to use reasonable care and skill to make all estate property productive, within the guidelines of the Will and state law restrictions. If you invest estate money in speculative ventures, you are risking personal liability in the event a loss is sustained, unless that investment is authorized specifically by the terms of the Will. The bottom line is that you must exercise prudence, discretion, and intelligence to safeguard the estate’s principal, but at the same time generate as much income as is reasonably possible. The key here is to be conservative. Your conduct and your investment performance are judged by the courts. The courts will consider your investment strategy as a whole. The courts will also consider other factors, needs of beneficiaries, taxes, general economic conditions, etc. You will be personally liable when losses result from your imprudent conduct. You may delegate investment responsibilities where appropriate, such as retaining a professional advisor.You may retain non-income-producing assets, but only if the Will specifically authorizes you to hold those assets (or if there is some other substantial reason for keeping them).

The Uniform Prudent Investor Act (UPIA) generally requires diversification of assets, loyalty, equal treatment of beneficiaries, and management using reasonable care and caution, while considering the facts and circumstances of the situation. The testator can “exempt” his fiduciary from following the UPIA or certain of its provisions by stating so in the Will. For flexibility, attorneys often waive UPIA requirements; for example a family vacation home or business or a tract of land may comprise the bulk of the estate. In these cases, waiving the UPIA allows the fiduciary to retain those assets and not be required to diversify.

5. Maintaining Accurate Records. Maintaining accurate records is another important duty. You must account periodically to the Commissioner of accounts. You also have a duty to keep the beneficiaries reasonably well informed. Further, disclosure to beneficiaries is an good way to avoid suspicion and possibly litigation, and maintaining accurate records will help in these respects. Conversely, if you do not maintain good records, you will be held liable if there is a loss or expense that can be traced to your failure to do so. For example, it is critical that you obtain a receipt for any assets you distribute to a beneficiary. This receipt will be included in your account of the estate. This receipt, which we will prepare, should describe the assets in detail so that you can prove what has  been distributed, to whom, and when. It also shows that the beneficiary has accepted the asset from the estate.

Annual accountings are the primary document a fiduciary must file in probate. These are filed with the Commissioner of Accounts and are not required to be copied to beneficiaries, unless requested in writing. Va Code 26-12.4While outside the scope of this outline, I note that trustees of testamentary trusts may not need to file accountings even though such trusts are generally under court supervision; Virginia laws allows testators to waive accounting requirements in their Wills. See Va. Code 26-17.7.

6. Duty Not To Delegate. As executor, you may not delegate your fiduciary responsibility. This duty “not to delegate” is derived from the very nature of your fiduciary position as executor. Obviously, you are entitled to employ counsel, accountants and others to help in your tasks. But you have a personal duty to perform the responsibilities of an estate’s executor. Even though you may delegate certain administrative or “ministerial” tasks, you have a duty to the beneficiaries of the estate to supervise the conduct of the people you hire.The UPIA allows the fiduciary to delegate certain responsibilities relating to investments. Va. Code 26-45.10. Most often this entail hiring an investment advisor. If an advisor is hired and properly monitored, the fiduciary will not be liable for that advisor’s actions or decisions. In practice, fiduciaries often wonder which duties they must perform. For example, should they prepare the Inventory and Accounting or not? What about correspondence to the beneficiaries? The correct answer will depend on each case, particularly the family dynamics and capabilities of the fiduciary.