In this article...

This article will discuss:

  • The fiduciary duties of an estate’s representative. 
  • The prohibition on self-dealing 
  • The Duty of Care
  • Significant transactions
  • Prudent investing 
  • Removal of Personal representative 

This article will discuss:

  • The fiduciary duties of an estate’s representative. 
  • The prohibition on self-dealing 
  • The Duty of Care
  • Significant transactions
  • Prudent investing 
  • Removal of Personal representative 

The Fiduciary Duties of an Estate’s Representative

In Iowa personal representatives in probate cases are administrators (if there is no will) and executors (if there is a will). Personal representatives have fiduciary duties to act impartially for the benefit of creditors and beneficiaries. Under Iowa Code, claims of creditors receive priority over distributions to beneficiaries.  

The personal representative is responsible for settling and winding up the estate under the law. It is a breach of fiduciary duty to: 

  • Neglect or unreasonably delay collecting the credits or other assets of the estate or selling, mortgaging, or leasing property of the estate 
  • Neglect in paying over money or delivering property of the estate the fiduciary has in its hands 
  • Failing to account for or to close the estate within the time provided by the code 
  • Any loss to the state arising from the fiduciary’s embezzlement or commingling of the assets of the estate with other property; 
  • For loss to the estate through self-dealing 
  • For loss to the estate from wrongful acts or omissions of any co-fiduciaries which the fiduciary could have prevented by the exercise of ordinary care 
  • For any other negligent or willful act or nonfeasance in the fiduciary’s administration of the estate by which loss to the estate arises.  

The personal representative may be examined by the court on any matter relating to the fiduciary’s accounts  

Prohibition on Self-Dealing 

It is a breach of fiduciary duty for the personal representative to engage in self-dealing, except on order of the court after notice to all interested persons. The personal representative derives no profit other than the fiduciary’s share in the estate from the sale or liquidation of any property belonging to the estate.  

Liability for the estate’s property 

The personal representative is liable and chargeable for all of the estate that comes into its possession at any time, including income from the estate’s property. If the will mentions a trust, and there is no other special designation, the executor is also responsible for carrying out the will in regards to the trust. Their duty is to exercise the degree of care and prudence that an ordinary person would exercise in regard to their own affairs.  

However, the personal representative is not responsible for the debts due to the estate or other assets of the estate that remain uncollected, without the personal representative’s fault.  

Administer an Estate in Accordance with the Terms of the Will  

If there is a valid will, it is the executor’s responsibility to administer the estate in accordance with the terms of the will.  

Duty of Care 

The standard of care generally applicable to personal representatives is the degree of prudence and diligence which a person of ordinary judgment would be expected to bestow upon his own affairs of a like nature. So, if a personal representative would have acted in the same way an ordinary person would have toward their own investments, the party is exercising the appropriate level of care.   The party asserting that the personal representative has violated his or her duty has the burden of showing the executor or administrator acted wrongly. The Court may have a hearing on the matter and hear evidence from the personal representative and the complainant.  

Significant Transactions 

Sometimes, as when distributing significant property such as real estate, it is prudent to receive a court order prior to making the distribution. The court has said the personal representative acts at their own peril with respect to distributions made without court orders, due to “dangers presented by creditors, costs of administration, and claims of other beneficiaries. If a particular distribution so depletes the estate that those interests suffer, then the personal representative may be surcharged.” The court strongly favors the personal representative receiving its approval prior to making these larger transactions.  

Prudent Investments 

There are specific sections of the probate code with respect to prudent investments. The personal representative must invest and manage property in a way a prudent investor would. The investments are evaluated as part of an overall investment strategy, having risk and return objectives reasonably suited to the estate. The court looks at several factors to determine if the personal representative has invested prudently. These factors include: 

  • general economic conditions, 
  • the effects of inflation or deflation,  
  • the expected tax consequences of the investment decisions,  
  • the role each investment plays within the overall portfolio,  
  • the expected total return from income and appreciation of capital,  
  • other resources of the beneficiaries,  
  • needs for liquidity, regularity of income, and preservation or appreciation of capital, an asset’s special relationship or  
  • special value to the beneficiaries. 

This does not mean that the assets need to produce returns. For instance, if an executor suffered a big loss during the Financial Crisis of 2008 but acted as a reasonable investor would have at the time, he or she likely would not have been in violation of their fiduciary duties.  

The personal representative must also consider the length of time they will have control over the estate assets and the anticipated costs of complying with the probate code. They must also consider the duties of a personal representative, the assets, income, expenses, and distribution requirements of the estate, the needs and rights of the beneficiaries or ward, and the express provisions of a will, codicil, or other controlling instrument.  

Because some estates only exist for a limited time, there will be times where an investment or change in investment is not warranted.  

Removal of Personal Representative 

Other interested parties may file to remove a personal representative. In such cases, the district court is allowed large discretion in determining whether to remove an executor. As a fiduciary, the executor may be removed when it has: 

  • Mismanaged the estate; 
  • Failed to perform any duty imposed by law, or by any lawful order of court 
  • Or is no longer a resident of the state of Iowa.  

The court may order the executor to show cause why they should not be removed. Any interested party of the estate, or the court on its own motion, could file an application for the executor to show cause as to why it should not be removed. The executor’s acts prior to the removal are not invalidated because of the removal. The court then may appoint another fiduciary if the administration of the will has not been completed.  

Upon final settlement of the estate, within three years after the second publication, the court enters an order discharging the executor’s responsibilities.  


Posted 
February 1, 2021
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