What’s An Executor to Do? General Executor Duties in Texas and New Mexico
In the context of estates and trusts, there is no more important role than to serve as the person appointed to identify and distribute the deceased’s assets. The title of this person varies depending on the circumstances. For a trust, the person in charge of the assets is usually referred to as the trustee. For probate proceedings related to the estate of a person that has died (i.e., a decedent), the person appointed by the court may be referred to by titles such the executor, the administrator, or the personal representative. In either case, the general term for the appointed person is a fiduciary. With the appointment of the fiduciary comes many responsibilities and duties.
In addition to duties that arise by specific statutes, a fiduciary is required to comply with some important general duties, often referred to as fiduciary duties. This article addresses some of the fiduciary duties that generally apply to any fiduciary appointed to serve as a trustee, an executor, administrator, or personal representative in Texas or New Mexico.
The duty of loyalty. As a fiduciary, the most fundamental duty owed is the duty of loyalty to the beneficiaries, heirs, or devisees (the “beneficiaries”). The relationship between the fiduciary and the beneficiaries arises out of the very nature of the duties as fiduciary. Generally, every action a fiduciary takes must be for the benefit of the beneficiaries of the estate or trust. Confidentiality is inherent in the duty of loyalty. The fiduciary should not disclose information about the estate or trust to unauthorized persons. A fiduciary must never place himself or herself in a position that might favor his or her personal interests over the interests of the beneficiaries. A fiduciary must carefully and constantly avoid conflicts of interest. A fiduciary must not derive any personal advantage from, or realize a profit in, business dealings with the estate or trust. This does not mean, however, that a fiduciary cannot be reimbursed for expenses or take a reasonable fee or commission for his or her services.
The duty of prudence. A fiduciary has a duty to exercise care, diligence, and prudence in dealing with the property of the estate or trust. Generally, a fiduciary’s conduct will be considered reasonable if he or she acts as a “prudent” person would act. This prudent person standard means that a fiduciary must act with the care and skill that a prudent person would exercise in his or her own affairs.
The duty to preserve assets. A fiduciary also has a duty to preserve and protect the assets of the estate or trust. This is particularly important in the case of assets such as real estate, continuation of closely held business operations, household furniture, furnishings, jewelry, and coin, stamp, art, and other collections. A fiduciary is under a duty to provide adequate security and protection for these items. A fiduciary should therefore review the estate or trust assets with an insurance agent and immediately obtain sufficient insurance coverage if it does not already exist. A fiduciary may be held personally accountable for any loss that occurs on uninsured or underinsured assets.
Conduct in investing. With regard to investing, a fiduciary’s first duty is to protect capital and avoid undue risk. However, a fiduciary is also under a duty to use reasonable care and skill to make property productive, within the guidelines contained in the will or trust, if any, and in state law. If a fiduciary invests estate or trust money in speculative ventures, he or she may be risking personal liability if a loss is sustained, unless that investment is authorized specifically by the terms of the will or trust, if any. The bottom line is that a fiduciary must be a “prudent investor,” and exercise prudence, discretion, and intelligence to safeguard the principal of the estate or trust, while, at the same time generating as much income as is reasonably possible. Fortunately, it is the fiduciary’s conduct, rather than the performance of the investments, that is judged by the courts. A fiduciary will be personally liable usually only when losses result from imprudent conduct, rather than because investment performance has not been as good as possible. Subject to certain standards of reasonable care, skill, and caution, a fiduciary may delegate investment and management functions to a bank’s trust department or other competent persons. A fiduciary may retain non-income producing assets, but only if the will, trust, or applicable law specifically authorizes the fiduciary to hold those assets or if there is some other good reason for keeping them.
Other miscellaneous duties and matters. The fiduciary should maintain complete and accurate records of everything that is done related to the estate or trust. It is usually a good idea to open a file or multiple files to hold the communications related to the estate or trust and other records. Additionally, a fiduciary should keep the beneficiaries informed about the estate or trust and the fiduciary’s actions related to the estate or trust. Even if a fiduciary hires an accountant, lawyer, financial advisor, or other professionals to assist and advise the fiduciary, ultimately the fiduciary is usually responsible for making sure everything that needs to be done is done and that the interests of the beneficiaries are protected.
Each state imposes additional duties on fiduciaries by statute, but the fiduciary should understand that the general duties described above are at the heart of what it means to be a fiduciary. Being nominated to serve as a fiduciary is usually considered an honor, but the nominee should make an informed decision about his or her willingness to accept the significant responsibilities that accompany the role of fiduciary. Knowing what is involved before a person accepts the role may help reduce the possibility of confusion, frustration, and even litigation later. In addition, the person who nominates someone to serve as a fiduciary should understand some basic principles of what is required of a fiduciary so that he or she nominates a trustworthy individual or professional to serve this important function.
~Estate Planning, Probate & Asset Protection Section