Introduction to the Topic of This Page
Just exactly what does the term “Fiduciary” mean? Is it just a fancy legal term with little significance or a mega term with significant impact? The answer is it’s a big word with a big legal meaning.
A fiduciary is a person or an entity (i.e. bank, trust company, etc.) to whom property or power is given and entrusted for the benefit of another(s). It is a position of great trust, confidence and responsibility. The law is demanding of a fiduciary and so it’s important you understand exactly what it means.
Being a fiduciary is challenging enough when only one person or a single corporate entity has been appointed, but when two (2) or more persons or entities are appointed to serve as fiduciaries the potential for complication increases significantly. Because there is little direction (or discussion) out there for a fiduciary to read (except for large corporate or trust company trustee(s) with high powered legal advisors) I thought I would address the subject of serving as a fiduciary or bring claims against a fiduciary.
Claims By or Against Fiduciaries
The most frequent issue(s) to be encountered by a fiduciary is:
- Claims filed by beneficiaries, creditors and/or others with an interest in the Estate or trust.
- The decisions or conduct of the fiduciary during his/her service.
- Claims between fiduciaries themselves where more than one fiduciary serves in office;
We will explain all these claims later on this page.
Claims like those described above are generally emotionally charged. Often an estate or trust beneficiary or those who claim some economic entitlement or right(s) under the estate/trust administration want to go after the fiduciary. To pursue such a claim, a dissatisfied beneficiary must first satisfy N.J.S.A. § 3 B: 14-40 which prohibits the filing of legal action against a personal representative of an estate within six months of his or her appointment. This six-month period is intended to enable the personal representative to learn about the estate, examine the condition of the estate, calculate its value and evaluate what debts must be paid.
Breach of Fiduciary Duty to Estate
New Jersey law is very detailed about the standard of care to be followed by a personal representative, who is a fiduciary, (N.J.S.A. § 3B:10-26). Unless the terms of a decedent’s will direct otherwise, the personal representative must deal with estate assets as a prudent person would act if he/she were still alive. The same holds true for an estate administrator. The administrator must collect and preserve estate assets and has a duty to actively supervise the administration of the estate.
What Does It Mean a “Legal Fiduciary Standard of Care”?
The standard of performance and what the law expects of a fiduciary is to exercise a level of care, responsibility, caution, deliberation and foresight that an ordinarily responsible and prudent person would employ in his or her own personal matters regardless, of his/her degree of education, experience or intellect. What this means in practical terms is that the estate representative must act honestly, contentiously and effectively in handling all aspects of the estate. So long as an executor or administrator acts in good faith and uses reasonable discretion within the scope of his/her powers, any challenge to his/her actions or decisions will often fail.
Voidable Transactions by an Executor Because of a Conflict of Interest
Not all executors are honest and not all executors act with honorable purposes. I’ve seen proof of this over the years. In such situations the law offers relief to those adversely impacted by a “bad” executor or administrator.
New Jersey statutes provide authority for voiding transaction(s) made by a fiduciary which is/are tainted by a substantial conflict of interest or otherwise. The law reads as follows:
“Any sale or encumbrance to a fiduciary, his spouse, agent or attorney, or any corporation or trust in which he has a substantial beneficial interest, or any transaction which is affected by a substantial conflict of interest on the part of the fiduciary, is voidable by any person interested in the estate except one who has consented after fair disclosure, unless: (a) the will or a contract entered into by the decedent expressly authorizes the transaction; or (b) the transaction is approved by a court after notice to interested persons” NJ.S.A 3B:14-36.
Request for the Voluntary Resignation of the Estate/Trust Fiduciary
No one can be forced to serve as a fiduciary but once one accepts the position, getting out and not serving is not as simple as “I quit”. A Superior court judge has the power to release a fiduciary for good cause pursuant to NJ.SA § 3B: 14(c) 18, and often times will approve a request by a fiduciary to be released from continued service so long as the discharge is not prejudicial to the estate or persons having an interest in the estate/trust. Voluntary requests for release from service occur when a fiduciary wants to resign prior to conclusion of his/her service or when the fiduciary can no longer fulfill his/her duties for reasons such as health, disability, relocation or death. The court will consider any opposition to the requested resignation but if the reasons for the resignation are reasonable, my experience is that judges will not force someone to serve who either doesn’t want to or can’t. But, don’t assume it’s a sure thing. If a judge feels that the resignation is not bona-fide or other reasons compel continued service the application for resignation can be denied.
If I’m speaking to you and you’re contemplating a resignation as trustee or for that matter any fiduciary position contact me and let’s meet to discuss your situation. You can easily reach me toll free at (855) 376-5291 or email me at email@example.com.
Effect of Being Released as a Fiduciary
The effect of being released as a fiduciary is that he or she is discharged of all further duties of the office, except for providing a financial accounting of his/her term of service and paying over the funds and assets to the successor fiduciary. If the fiduciary is discharged, the court will consider whether the payment of a statutory commission for services rendered to the Estate/Trust should be approved, if reasonable and fair.
The discharge or removal of a fiduciary does not automatically release the fiduciary from potential liabilities for property which has been or should have been received, or for any neglect, default, miscarriage, or breach of trust in the performance of their services. It is especially important that a fiduciary who proposes to resign (or be discharged) give serious reflection upon his or her stewardship of the Estate or trust to be sure their successor will not go after them later because of some action during their tenure as fiduciary.
Involuntary Removal of Fiduciary or “You’re Fired” The Forcible Removal of a Fiduciary
Many beneficiaries and interested parties meet with me and are insistent on removing the estate representative. What are the chances of success? The law offers some grounds for relief. A court may remove a fiduciary from office when:
1) A court order or judgment compels that the estate representative to do something and the representative neglects or refuses, within the time period fixed by the court to comply with the order. Some examples of this include, filing an inventory, rendering an accounting, posting security, selling assets, paying creditors, taking possession of valuable property, neglecting to keep beneficiaries informed to name a few.
2) The Estate Representative/Trustee has embezzled, damaged or is alleged to have allowed the deterioration and loss of value to estate assets and property within his or her custody.
3) The Estate Representative/Trustee has abused the trust and confidence of his/her office which the law imposes upon a fiduciary;
4) The Estate Representative has physically left the state of New Jersey and/or neglects or refuses to proceed with the administration of the estate/trust and perform his/her fiduciary duties;
5) The Estate Representative has become incapacitated or mentally impaired to manage the necessary transactions of the estate;
6) Where there is more than one fiduciary, he/she has neglected or refuses to perform their duties or to join with the other fiduciary or fiduciaries in the proper administration and settlement of the estate.
Who Can Request That a Fiduciary Be Removed?
Not just anyone involved in a probate/trust administration has the right to remove a fiduciary. There is a concept in the law known as “standing” which means that only a “party with an interest can petition a court for removal except that a Superior Court on its own initiative can involuntarily remove a fiduciary. A fiduciary can also be removed upon a showing that he/she was appointed to the position as a result of fraud, or has demonstrated misconduct, or breach a trust. Sometimes the basis for removal is lack of capacity or being subject to the undue influence of others.
If removed or discharged the fiduciary must turn over to his/her successor all funds, assets and property and all relevant documents related to the estate within 60 days (or within such time as the court may allow).
A court may remove a fiduciary from office, without the fiduciary’s consent (called an involuntary removal), under any of the grounds listed in NJ.S.A. § 3B:14-2. Some examples of these grounds include the following:
- A significant mental or physically incapacity which interferes with the fiduciary’s service,
- Abuse of the trust of his/her position in the management of the trust, estate or the offices under his/her control,
- Embezzling, stealing, wasting or misapplying assets and funds in his/her care and custody.
- A significant violation of or, disobedience of a court order.
In addition, where more than one fiduciary is serving, the court may remove a fiduciary who continually neglects or refuses to perform his or her duties with the co-fiduciary(ies) or is adversary and/or contentious in his/her administration of the estate, which adversely impacts the ongoing administration settlement and winding up of the estate or trust.
Fiduciary Surcharge for His or Her Dereliction of Duty
Under certain circumstances, the costs and expenses (i.e. accounting, legal expenses etc.) incurred when seeking to remove a fiduciary can be charged personally to the fiduciary. When the fiduciary either created the reason for removal or unnecessarily and wastefully created expenses because of his/her misconduct or negligence (especially if it is purposeful conduct or inexcusable delay and neglect), several reported court cases have held the fiduciary personally liable for the economic loss to the Estate/Trust. In one case a trustee who paid no attention to the trust fund but left its administration entirely in the hands of an acting non-trustee, not only was discharged, but assessed significant costs, fees and expenses incurred by the trust because of his willful indifference as a fiduciary.
Recovery of Assets from Another Fiduciary
When a fiduciary has intentionally misappropriated funds, his/her removal is a foregone conclusion and if legal proceedings are filed to recover the assets in the possession of the discharged or removed fiduciary, (or against any other person in possession of the assets previously under the control of the fiduciary) the legal action will be successful. In such a case the fiduciary can expect that personal liability will be imposed against him/her for all damages associated with the lawsuit.
What to Do if You’re Unsure What to Do
Because the law is not always clear on every aspect of estate, trust, and POA administration and because the facts of a particular matter/issue may be unique, confusing or in dispute, as a fiduciary or beneficiary subject to the decision making of a fiduciary, you may want reassurance that what you are proposing to do is legal. In such a situation there is an available option you can select, that being “Ask the Judge”. Let me explain this option further.
Applications by a Fiduciary to a Court for Advice and Direction When In Doubt
New Jersey Court rule 4:95-2 allows a fiduciary to apply for instructions. Under this Rule, an executor, administrator, guardian, or trustee may bring an action for instructions from a Judge as to the exercise (or refusal to exercise) any statutory powers allowed by law or for advice and direction(s) in making investments, distributions payment of expenses from the estate.
This Rule applies not only to instructions on how to invest Estate funds, but to all the statutory powers given to a fiduciary under the law. In such cases, the fiduciary may apply to the court for directions after giving proper notice of his/her application to the court and to all persons involved in the matter.
Actions to Preserve or Protect the Property of Estate and/or Trust
Unless a controlling document or a court order directs otherwise, every personal representative/fiduciary has the right and the duty to take possession and control of Estate property. Tangible personal properly (i.e. clothing, jewelry, household & personal items etc.) can be left with or given to the person entitled to receive the properly, unless the personal representative concludes he or she needs to take possession of it for purposes of administrating a Trust or Estate. Under N.J.S.A. § 3B:10-29 the personal representative must demand delivery of any property in the possession of an heir or person in Possession. If the targeted person ignores the request and subsequent legal action is taken against the heir or person in possession any loss or damage to the property falls upon the possessor. This notice to the possessor can be very important if more than one (1) person claims ownership to the property (i.e. mom’s jewelry, dad’s shotgun etc.). Believe me when I tell you personal property claims in Court occur more times than I can count.
While in charge of the Estate, Trust or finances of a person/entity the fiduciary is required to pay taxes on all property and to take all steps reasonably necessary for the management, protection, and preservation of the estate in his or her possession. He or she may also maintain an action to determine the lawful ownership of disputed estate assets.
The law also authorizes a fiduciary to sue for damages inflicted upon property. Under this statute, any person who injures, damages, or destroys properly in the hands of a fiduciary or that is owned by the estate is will be liable to the fiduciary on behalf of all beneficiaries, creditors and others with an interest in that property.
Actions by Third Parties Against Fiduciaries
A seldom discussed topic is the personal liability of a fiduciary to others (third parties) for injuries and/or claims because of the actions taken by the fiduciary during his or her oversight of the estate or trust. Claims by third parties can be based upon a contract(s) signed by the fiduciary in his/her representative capacity or as a result of the ownership or control of estate and/or assets. Claims can also be made against the Estate and fiduciary for torts committed in the course of estate/trust administration.
The general rule (but there are many exceptions) is that a fiduciary is not personally liable on a breach of contract claim properly entered into during his/her fiduciary capacity and in the course of estate/trust administration, unless he or she fails to reveal his/her fiduciary identify to the other side. Like I said, there are several exceptions to the law which protects a fiduciary from personal liability. If you are a fiduciary being personally sued or are someone who has filed a claim against a fiduciary personally, I invite you to call me personally at (855) 376-5291 or email me at firstname.lastname@example.org.
Disagreement Among Multiple Fiduciaries
I know that in my practice, I almost never recommend the appointment of multiple fiduciaries. The reason is because there is a much greater potential for disagreement(s) and with disagreements come conflicts and with conflicts comes litigation. I concede however that one way to minimize conflicts among multiple fiduciaries is to insert a “majority rule” provision to avoid deadlock votes (deadlock means less than a majority vote).
But, what about bona-fide disagreements among multiple fiduciaries? What about a fiduciary who disagrees with the majority decision? What can he or she do to protect themselves or the estate/trust/person under their watch? First off, where there are three or more fiduciaries and most fiduciaries decide, the minority can dissent. A fiduciary who fails to disapprove the decision of the majority by dissent can still be held personally liable for the actions of the majority unless he or she expresses promptly in writing to his co-fiduciaries, his or her dissent. If it is done, he/she is not be liable for the consequences of any majority decision.
So, there you have it, a concise discussion of the topic of “claims by and against Fiduciaries, Trustees and Administrators.” I hope you have benefited from your time reading this page.
If we at Hanlon Niemann & Wright can be of assistance to you now or in the future, please
do not hesitate to contact me (855) 376-5291 or e-mail me at email@example.com.
Estate Administration and Probate Lawyers serving these New Jersey Counties:
Monmouth County, Ocean County, Essex County, Cape May County, Mercer County, Middlesex County, Bergen County, Morris County, Burlington County, Union County, Somerset County, Hudson County, Passaic County