Understanding the Key Fiduciary Duties in Wills and Estates
Fiduciary duty is one of those terms that gets bandied about. While it has a very specific legal definition, it is often misunderstood and used incorrectly—especially in the context of wills and estates.
But what exactly is a fiduciary duty?
Let’s start with the first part of the term—fiduciary. A fiduciary is a person or organization that is obligated to act in the best interest of another party. Within the realm of wills and estates are three main kinds of fiduciaries: executor, administrator, and trustee.
Three kinds of fiduciaries
- Executor
The executor (otherwise known as a personal representative) is the person who’s been designated to carry out the wishes of the deceased. The executor is typically designated by the deceased in their will. The executor carries out an array of tasks, including administering the estate (collecting assets, paying debts and taxes, etc.) and distributing assets to the beneficiaries.
- Administrator
If a person dies intestate—i.e., without a will—the court can appoint an administrator to manage their estate. The administrator has the same basic responsibilities as the executor. However, instead of following instructions in the will, they follow the laws of intestacy, which are set out in the Wills, Estates and Succession Act.
- Trustee
When the deceased person’s will has established a trust, a trustee is appointed to manage the trust’s assets on behalf of the beneficiaries. This creates a fiduciary relationship between the trustee and the beneficiaries.
Three key fiduciary duties
Now that we’ve clarified the meaning of fiduciary let’s move on to duty. The fiduciary has several key duties laid out in the Wills, Estates and Succession Act. These include the duty of loyalty, duty of care, duty of transparency, duty to follow the will, duty to account, and duty of impartiality.
In this section, we will go into detail about three of these duties.
- Duty of loyalty
The duty of loyalty applies to any fiduciary who manages a deceased person’s estate or trust.
The duty requires that the fiduciary always act in the best interests of the beneficiaries. It is, therefore, imperative that the fiduciary place the beneficiaries’ well-being above their own. Moreover, the fiduciary must never use their position for personal gain.
One of the key elements of the duty of loyalty is to avoid self-dealing. Self-dealing occurs when a fiduciary exploits their position to profit from the deceased person’s estate or trust.
Barbieri Estate v. White and the prohibition against self-dealing
The duty of loyalty and the prohibition against self-dealing were at issue in Barbieri Estate v. White. In this case, the deceased mother’s will had named one of her sons (the defendant) as the executor of her estate. The plaintiffs, who were also children of the deceased, accused the defendant executor of engaging in self-dealing by transferring assets from the deceased’s estate to himself. They alleged that the defendant sold estate property to himself at an undervalued price.
The court found that the defendant had indeed breached his fiduciary duty of loyalty. He was ordered to pay damages to the beneficiaries for the improper transactions.
The court described the issue of self-dealing as follows:
Can the Court authorize a trustee who is also a beneficiary of the trust to buy trust property at an independently appraised value without exposing the property to sale on the open market and over the objection of the other beneficiary? In my view, the answer is no.
It is well settled as a general rule that a trustee who owes a fiduciary duty of loyalty to the beneficiaries cannot purchase trust property as doing so would put the trustee in a conflict of interest.
Barbieri v. White illustrates the courts’ firm stance against self-dealing and breach of fiduciary duty by an executor.
- Duty of care
The duty of care refers to the fiduciary’s obligation to act with the same level of care, diligence, and skill that a reasonable person would use in similar circumstances. It ensures that the fiduciary acts in the interests of the beneficiaries in managing the estate.
Rawji Estate (Re) and the jeopardization of estate assets
In the 2023 case of Rawji Estate (Re), the BC Supreme Court ordered the removal of an executor, Amman, who had jeopardized the estate assets and was in a conflict of interest. The court highlighted that an executor’s primary duty is to “preserve the estate assets, pay the debts, and distribute the balance to the beneficiaries under the will.” The executor’s actions, which put estate assets at risk and created a conflict of interest, were deemed a breach of the duty of care, leading to their removal.
- Duty of transparency
The third fiduciary duty in wills and estates is the duty of transparency. In wills and estates, this generally refers to the fiduciary’s obligation to act honestly, fairly, and openly in managing the deceased’s estate.
The duty of transparency arose (along with the duty of care) in Rawji Estate (Re). The court noted that Amman refused to disclose the potential buyer’s identity and offered to sell an estate asset below market value. According to the court, this constituted a troubling lack of transparency and was not in keeping with the executor’s fiduciary obligation.
When the fiduciary abides by the duty of transparency, it helps ensure that the estate is administered according to the deceased’s wishes, promotes fairness among beneficiaries, and minimizes the risk of disputes or legal challenges. This duty is especially important in complex estates or when there are potential disagreements among beneficiaries. The personal representative can build trust and avoid unnecessary legal complications by maintaining transparency.
Fiduciary Duties in BC Wills and Estates
The duties of the fiduciary, which include loyalty, care, and transparency, are central to the administration of wills and estates in BC. They ensure that whoever is handling the affairs of the deceased person is acting in the best interests of the beneficiaries. There may be significant legal consequences if a personal representative or trustee breaches their duties. Courts can order the removal of the personal representative, compensation for any losses caused by the breach, and other sanctions and penalties. It is, therefore, incumbent to have a clear understanding of the fiduciary’s role in the complex and delicate landscape of wills and estates.
Trusted Estate Lawyers Providing Estate Administration Services in Vernon & Salmon Arm
If you have questions about the administration of an estate, whether or not you have a fiduciary duty, contact the knowledgeable estate administration lawyers at CM Lawyers. We have convenient office locations in Vernon and Salmon Arm and proudly serve the surrounding areas, including Northern Okanagan and Shuswap. To schedule a consultation, please call our Vernon office at (250) 308-0338 or our Salmon Arm office at (250) 803-9171. You can also contact us online.