Fiduciary relationships often arise in estate planning. A fiduciary assignment is one of trust and power, which is why the law imposes substantial burdens and duties on the individuals who accept the position.
Fiduciaries must accordingly act honestly, fairly, loyally, and in good faith for the people they work for and must always place the principal or beneficiary’s interests above their own, especially when caring for another’s cash, property or assets.
Some folks find it difficult to determine when fiduciary relationships begin. It’s important to recognize when you hold a fiduciary position and what legal responsibilities surround the appointment to escape possible costly fiduciary litigation during your tenure.
Let’s review ten situations where people may assume fiduciary positions in estate law, examine their legal duties, and consider recent fiduciary litigation associated with each assignment.
- Family Member Fiduciary
Duty Owed to: Another Family Member
Fiduciary Assignment: Fiduciary duties arise when one family member assumes a dominant position over another family member with such superiority that the stronger party may use their newly assigned power to the weaker party’s detriment.
The parties accordingly will form a confidential relationship under the law with the most common fiduciary-familial affinity occurring when one relative agrees to care for the finances and personal care of another aging or incapacitated relative.
Scope of Duties and Obligations: Family members in a confidential relationship hold a duty of care to perform in good faith and to not exploit the weaker family member’s trust or confidence for their own personal or financial gain.
Relevant Fiduciary Litigation: In the Matter of the Estate of Kline (Iowa 2019), the Court of Appeals of Iowa held a sister breached her implied fiduciary duties (via undue influence) and intentionally interfered with her brother’s inheritance after moving her father’s cash assets to her account before he died.
- Trustee Fiduciary
Duty Owed to: Beneficiaries
Fiduciary Assignment: Testators name trustees in their testamentary documents to control their heirs’ inherited trust and to distribute trust assets among beneficiaries as expressed in the document’s provisions. A trustee holds the legal authority to buy, sell and invest trust assets but must do so in the beneficiary’s best interest.
Scope of Duty and Obligations: An appointed trustee bears the same duty to perform in good faith as mentioned above. They also hold a duty of prudence to manage the trust with care, skill and caution as another prudent trustee would exercise under similar circumstances.
Trustees further hold fiduciary obligations to prepare and disclose estate accountings to beneficiaries or to the courts when required and to communicate regularly with beneficiaries about the trust’s standing.
Relevant Fiduciary Litigation: In Schildberg v. Schildberg (Iowa 1990), the Supreme Court of Iowa refused to remove a trustee on grounds that he had failed to produce an annual accounting to beneficiaries, which contradicts holdings found In the Matter of Virgil De Groote Revocable Trust (Iowa 2019) when the appellate court removed a trustee for breach of duty to inform and report a full accounting of trust assets.
- Executor/Personal Representative Fiduciary
Duty Owed to: Heirs and Beneficiaries
Fiduciary Assignment: Testators likewise appoint an executor during estate planning to present their will to probate, notify heirs, settle their debts, prepare accountings, file their taxes and distribute the remainder of assets to named beneficiaries.
Scope of Duty and Obligations: Along with a duty of care to act prudently, honestly and in good faith, executors further hold a duty of loyalty to administer estate assets impartially and exactly as provided in the will.
Relevant Fiduciary Litigation: In the Matter of Estate of Houser (Iowa 2017), a sister serving as executor caused delays in settling her mother’s estate after failing to communicate with her three brothers directly. The fiduciary eventually lost her position after advising the brothers to contact her attorney instead of dealing with the brother’s probate inquiries herself.
- Attorney/Power of Attorney Fiduciary
Duty Owed to: Clients and Principals
Fiduciary Assignment: Estate attorneys take on fiduciary duties immediately after their clients hire them. Individuals who hold power of attorney over principals likewise assume similar legal obligations.
Testators employ estate planning attorneys to draft and execute their testamentary documents and often name lawyers to function as the executor/trustee of their estate upon death. Executors and trustees also hire attorney services to advise them before, during and after probate proceedings.
Seniors may likewise voluntarily assign power of attorney to authorized agents as they grow older, giving such a person (or entity) the authority to act for them in particular legal or financial matters.
Scope of Duty and Obligations: The law generally imposes on lawyers and power of attorney agents the following high-bar legal obligations:
- A duty of care to represent the client/principal competently and to act in good faith when handling his or her affairs.
- A duty to maintain confidentiality and not make public disclosure of the client/principal’s finances, private information or legal matters.
- A duty of loyalty to act fairly, ethically, and honestly while representing the client/principal’s best interests and to avoid conflicts of interests or self-dealing activities to secure a personal benefit.
Individuals who breach one or more of the fiduciary duties mentioned above may find themselves facing a malpractice lawsuit or defending a power of attorney abuse action in probate court.
Relevant Fiduciary Litigation: In Sabin v. Ackerman (Iowa 2014), a woman brought a legal malpractice lawsuit against an estate planning attorney who allegedly didn’t protect her interests during probate proceedings. Here, the Supreme Court of Iowa scrutinized the duty of prudent care owed by an executor’s attorney hired to provide legal services while settling an estate.
- Caregiver/Healthcare Worker Fiduciary
Duty Owed to: Elderly or Disabled Persons
Fiduciary Assignment: A caregiver is not inherently fiduciary per se. However, like a family member fiduciary, legal duties may arise if caregivers form confidential relationships with their clients.
Elders and disabled individuals may also assign power of attorney to assisted-living employees to act as their agent for paying their bills and expenses related to their daily care.
Scope of Duty and Obligations: When weaker individuals place the absolute trust and confidence in caregivers to manage and protect their money and their lives, the party in power will hold legal obligations:
- to manage the principal’s finances prudently;
- to exercise discretionary authority and control over the principal’s assets;
- to act in good faith and only within the scope of authority granted in the power of attorney.
Relevant Fiduciary Litigation: The Court of appeals of Iowa in ALGOE v. Johnson (Iowa 2010) set aside the inheritance of a son who cared for his mother after she suffered a stroke because he failed to disprove a presumption of undue influence asserted by his sisters in probate court.
- Guardianship Fiduciary
Duty Owed to: Ward
Fiduciary Assignment: Testators sometimes appoint guardians in their estate planning documents to care for their minor children and the minors’ estate upon the death of both parents. Guardians accordingly manage the ward’s property, money, and assets until he or she reaches legal adult age to take over the estate.
Individuals may also voluntarily petition the courts to appoint a guardian to take care of them as they become older.
Scope of Duty and Obligations: Like a caregiver fiduciary, guardians hold legal duties to perform in the ward’s best interest and exercise prudent judgment when managing the ward’s financial affairs.
Relevant Fiduciary Litigation: A brother petitioned a district court in equity to remove guardianship from his sister In the Matter of the Guardianship and Conservatorship of Olsen (Iowa 2019); the court however affirmed the sister did not breach her fiduciary duties when choosing the cheapest possible living arrangement for her mother, effectively dismissing the brother’s injunction.