By: Chris Arakaky  [11/8/22]

When a person dies without a will, the person responsible for managing the estate is called an “administrator”. If the person died with a will, they would normally appoint somebody for this position, an “executor”. Both the administrator and executor are the “personal representative” of an estate. If a person executed a living trust while alive, the person responsible for managing the trust after their death would be called a “trustee”. Both personal representatives and trustees are fiduciaries. They owe a duty of loyalty and care to the beneficiaries when they manage the assets of the estate. That means they must exercise a reasonable degree of caution, be competent, and not show partiality.

Problems and Issues

One of the most important aspects of estate planning is the seamless transition of property from a decedent to the people they desire to leave their estate to. When the estate fiduciary and the beneficiaries are not on the same page and are at odds with one another, there can be very serious negative consequences. The administration of the estate can be prolonged for an unreasonable period. Courts may need to intervene to solve issues, resulting in potentially tens of thousands of dollars in legal costs. Certain beneficiaries may be left feeling unhappy and bitter, increasing animosity among the relatives of the deceased (especially in “blended families” involving children from prior marriages).

The problem can be even worse if a person dies without a will and has multiple heirs. In this case, each heir would have equal priority in serving as the administrator of the estate. If the heirs cannot agree on whom to defer to, then there could be a prolonged legal battle on the horizon, potentially lasting for several years. 

Personal representatives are required to give notice to all the beneficiaries/heirs, file an inventory and a yearly accounting of the estate with the court, liquidate assets, pay off estate debts, and make the final distribution to the beneficiaries or heirs. The entire process is convoluted and can take up to three years for some estates. This creates plenty of opportunities for fights and intense conflicts between the personal representative and the beneficiaries/heirs.

Best Solution

The best solution against this would normally be to set up a living revocable trust with a trustee who has the fitness and willingness to manage the trust assets. Unlike wills, living trusts are not public record and the successor trustee does not need to apply to the court to become the fiduciary of the estate. Instead, the appointment is automatic. The grantor(s) of the trust should think carefully and thoroughly about their family dynamics and pre-existing tensions. A corporate trustee may be a good idea in certain circumstances to give everybody a sense of impartiality. It is also generally not advisable to name successor co-trustees because it could lead to a stalemate and infighting. If the grantor wants to ensure there is some level of checks and balances on the trustee, the addition of a “trust protector” to provide oversight may be a better alternative to a successor co-trustee. 

Unfortunately, even with careful planning, conflicts between the trustee and beneficiaries cannot always be avoided. If beneficiaries believe the trustee is not faithfully carrying out their fiduciary duties, Virginia law affords them certain protections to preserve their share of the estate and assert their legal rights.

Legal Duties of Trustees and Remedies Available

Once the surviving grantor of the living trust passes away, the trust becomes irrevocable. At this time, beneficiaries of the trust will have the right to demand a report from the trustee to inspect and scrutinize how the estate is being handled. This allows for accountability even though the trust is not subject to the public probate process. Virginia law also requires trustees to abide by the prudent investor rule. The trustee must act exercise reasonable care, skill, and caution in managing the property of the estate. Generally, it also requires them to diversify assets, unless there is good reason not to (e.g., the proverbial “don’t put all your eggs in one basket”). To show they are exercising reasonable care, skill, and caution, the trustee must, among other things, take the following factors into account: general economic conditions, inflation and deflation, expected tax consequences, and expected rate of return and appreciation of capital.

A trustee not only owes a duty of care to the beneficiaries, but also a duty of loyalty. They must act impartially towards all beneficiaries and not give preference to one person above the others. They cannot be overly belligerent in their interactions. Self-dealing should be avoided, especially if the trustee greatly benefits in the transaction (e.g., in liquidating the assets of the estate, the trustee sells themselves the house far below the fair market value).

If a trustee breaches either their fiduciary duties of care or loyalty, the court may provide several remedies to the beneficiaries, such as removal of the trustee, denying compensation to the trustee, or holding the trustee personally liable for the losses of the estate. However, unpopular decisions in and of themselves will not be enough for the court to intervene. As the estate fiduciary, the trustee has a certain degree of discretion to call the shots, even if the beneficiaries strongly disagree. 

Conclusion

Choosing the person to administer your estate is one of the most critical decisions you will make in setting up your estate plan. You and your attorney should carefully think through your family relationships and the best person who can both manage the assets for your beneficiaries while at the same time sensitively navigate through their interpersonal dynamics.

To learn about how Dunlap Bennett & Ludwig can assist you with your legal needs, contact us by calling 800-747-9354 or by emailing clientservices@dbllawyers.com.


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