DUTIES OF PERSONAL
REPRESENTATIVES AND TRUSTEES
FALL, 2012
BRIAN C. HEWITT, ESQ.
ALERDING CASTOR HEWITT, LLP
47 S. PENNSYLVANIA ST., STE 700
INDIANAPOLIS, IN 46204
317.829.1910 (Main)
317.423.2089 (Fax)
bhewitt@alerdingcastor.com
Personal Representatives and Trustees have certain interrelated rights, powers, duties, liabilities,
and remedies respecting their performance as fiduciaries.
The duties of a Personal
Representative or Trustee must be properly carried out in accordance with all applicable laws,
regulations, standards, and guidelines (including, but not limited to, the terms of the governing
will or trust instrument, Indiana common law fiduciary standards, Indiana statutes, local court
rules and guidelines). Indiana’s Probate Code and Trust Code, while similar in many respects,
are not congruent. It is important for practitioners to note the distinctions between the duties
arising in estate and trust administration, in order to properly advise clients carrying out their
fiduciary capacities.
1. FIDUCIARY DUTIES IN GENERAL. A fiduciary has the power and obligation to act for
another under circumstances that carry the strictest duties of good faith, honesty, and loyalty.
The fiduciary relationship imposes the highest standard of care under the law.
a. Personal Representatives and Trustees are fiduciaries under common law and the
Indiana Code.
b. Personal Representatives and Trustees must act diligently, prudently, and in good
faith when carrying out their responsibilities to estate heirs or trust beneficiaries.
c. Unless expressly permitted, Personal Representatives and Trustees must refrain from
self-dealing and conflicts of interest. (Even when expressly permitted, fiduciaries
should exercise extreme caution when entering into such transactions.)
2. STATUTORY DUTIES OF A PERSONAL REPRESENTATIVE. Indiana’s Probate
Code [I.C. § 29-1 et seq.] sets forth the basic duties of a Personal Representative. At the time
of appointment, a Personal Representative takes an oath or affirmation that he or she will
faithfully discharge the duties of his or her trust according to law. I.C. § 29-1-10-3. These
duties must be carried out efficiently and according to fiduciary standards throughout the
course of the estate administration. A testator may expand or restrict certain duties of a
Personal Representative by including specific provisions in his or her will; however, the
general duties imposed upon Personal Representatives are as follows:
a. Identifying Assets: A Personal Representative must locate all real and personal
property owned by the decedent. I.C. § 29-1-13-1. This involves:
i.
Investigating, identifying, and valuing all assets owned by the decedent.
1. A review of the decedent’s mail and personal, financial, and tax
records can help the Personal Representative to discover estate assets.
2. A Personal Representative may need to recover unclaimed property
from the State, or initiate a lawsuit to recover possession of estate
property, to prevent waste, etc.
3. Professional appraisers should be employed to value real and personal
property.
ii.
Preparing an inventory of the estate’s assets, which reports the fair market
value of each item of property, within two (2) months of the Personal
Representative’s appointment. I.C. § 29-1-7.5-3.2.
1. The inventory, or notice that the inventory is available upon request,
must be served on all known heirs, beneficiaries, or distributees.
2. In a supervised estate, a verified copy of the inventory must be filed
with the court.
3. In an unsupervised estate, a verified certification that an inventory has
been prepared may be filed with the court, in lieu of the inventory
itself.
b. Collecting, Maintaining, and Protecting Assets: A Personal Representative must
maintain and protect all real and personal property owned by the decedent. I.C. § 291-13-1. Under no circumstances may a Personal Representative commingle estate
assets with the Personal Representative’s personal assets or other funds. The
Personal Representative’s duties typically include:
i.
Obtaining an Employer Identification Number from the Internal Revenue
Service and opening a checking or brokerage account in the name of the estate
(into which the decedent’s financial accounts may be transferred, and income
and proceeds may be deposited).
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ii.
Claiming any proceeds of life insurance policies, retirement accounts or
annuities that may be payable to the estate.
iii.
Transferring ownership of securities to the estate.
iv.
Exercising control over real estate, and ensuring that buildings and fixtures are
secure and maintained in tenantable repair, insurance is maintained, property
taxes are paid, any mortgages are current, any rents are collected, etc.
v.
Securing and protecting tangible personal property (insuring as necessary).
vi.
Liquidating assets, as necessary or desirable.
A Personal Representative is personally liable for all estate assets, including all
income therefrom, and is liable for any losses incurred by the estate that are
attributable to the Personal Representative’s neglect, delay, commingling, or other
wrongful acts. I.C. § 29-1-16-1. When investing any estate funds, the Personal
Representative is restricted to the kinds of investments permitted to Trustees under
Indiana law (summarized below). I.C. 29-1-13-14.
c. Handling Claims Against the Estate: A Personal Representative must ensure that
all claims against the estate are properly resolved. This involves:
i.
Exercising reasonable diligence to discover and notify the reasonably
ascertainable creditors of the decedent within one (1) month of the first
publication of notice of administration. I.C. § 29-1-7-7.5.
ii.
Inquiring into the correctness of all claims filed against the estate and making
all available defenses thereto. I.C. § 29-1-14-11.
iii.
Allowing or disallowing each claim timely filed against the estate, on or
before three (3) months and fifteen (15) days after the date of the first
published notice to creditors. I.C. § 29-1-14-10.
iv.
Paying all claims, per order of the court or the Personal Representative’s
determination that such claims are just and correct and the estate is solvent.
I.C. § 29-1-14-19.
d. Preparing and Filing Necessary Tax Returns, and Making Tax Payments: A
Personal Representative must ensure that any applicable federal and state tax returns
are timely filed and that tax payments are timely made. A Personal Representative
must determine whether any of the following returns must be filed:
i.
Individual income tax returns for the decedent (i.e. Forms 1040 and IT-40,
including returns for the year of the decedent’s death and any prior years in
which returns were required but not filed);
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ii.
Fiduciary income tax returns for the estate (i.e. Forms 1041 and IT-41);
iii.
Gift tax returns for the decedent (i.e. Form 709, for the year of death and any
prior year in which a return was required but not filed);
iv.
Federal estate tax return (i.e. Form 706); and
v.
Indiana inheritance tax returns (i.e. Form IH-6).
e. Distributing the Assets and Closing the Estate: A Personal Representative has a
duty to close the estate as promptly as possible. I.C. §§ 29-1-7.5-3.8, 29-1-16-2. This
involves:
i.
Preparing a final account of the Personal Representative’s administration of
the estate, in accordance with I.C. 29-1-16 et seq. If the estate is supervised,
this final account must be filed with the court.
ii.
Developing a distribution plan, in accordance with the provisions of the Will
(if any), the laws of intestacy (if applicable), or the instructions of the court (if
any), for the estate assets remaining after the satisfaction of all debts, claims,
expenses, and taxes, and the performance of all administrative tasks.
iii.
Filing a petition to settle and allow the Personal Representative’s final
account, and to authorize final distribution of the estate. I.C. §§ 29-1-16-3,
29-1-17-2.
Most Indiana counties provide Instructions to Personal Representatives in their online forms
libraries. These instructions provide a valuable roadmap for estate administration. Samples
of the Marion County forms (for both supervised and unsupervised estates) are included in
the Appendix attached hereto.
3. STATUTORY DUTIES OF A TRUSTEE. All actions undertaken by a Trustee are
subject to general fiduciary standards. The powers and duties of Trustees that are set forth in
the Indiana Trust Code [I.C. § 30-4-1 et seq.] may be modified, expanded, or otherwise
changed by the language of a trust instrument. However, a settlor may not relieve a Trustee
of liability for a breach of trust committed in bad faith, intentionally or with reckless
indifference to the interests of the beneficiary, or of liability for any profit that the Trustee
has derived from a breach of trust. I.C. § 30-4-3-32. The duties imposed upon a Trustee
may differ depending upon the type of trust and surrounding circumstances (e.g. a Trustee
may have additional administrative duties when no probate proceedings are initiated and no
Personal Representative is appointed upon the death of the settlor of the trust.)
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a. I.C. § 30-4-3-6 provides that a Trustee has the duty to administer a trust according to
its terms. Unless the terms of the trust provide otherwise, the Trustee also has a duty
to do the following:
i.
Administer the trust in a manner consistent with the Indiana Uniform Prudent
Investor Act [I.C. §30-4-3.5 et seq.](summarized below);
ii.
Take possession of and maintain control over the trust property;
iii.
Preserve the trust property;
iv.
Make the trust property productive for both the income and remainder
beneficiary;
v.
Keep the trust property separate from the trustee’s individual property and
separate from or clearly identifiable from property subject to another trust;
vi.
Maintain clear and accurate accounts with respect to the trust estate [See I.C. §
30-4-5-12 for the requirements of an accounting];
vii.
Upon reasonable request, give the beneficiary complete and accurate
information concerning any matter related to the administration of the trust
and permit the beneficiary or the beneficiary’s agent to inspect the trust
property, the Trustee’s accounts, and any other documents concerning the
administration of the trust;
viii.
Take whatever action is reasonable to realize on claims constituting part of the
trust property;
ix.
Defend actions involving the trust estate;
x.
Supervise any person to whom authority has been delegated; and
b. The Trust Code allows for exceptions to the fundamental duties of a fiduciary to
refrain from conflicts of interest and self-dealing. Nevertheless, any such transactions
should be carefully considered.
i.
With proper authorization by the court, the trust instrument, or the interested
parties, a Trustee may exercise a power that conflicts with the Trustee’s
individual interests. I.C. § 30-4-3-5.
ii.
With express authorization from the trust instrument, a Trustee may loan trust
funds to the Trustee or an affiliate, purchase trust property for the Trustee’s
own account, or sell property of the Trustee to the trust. I.C. § 30-4-3-7(a).
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4. DUTIES BETWEEN AND AMONG CO-FIDUCIARIES. Often, estates and trusts are
administered by Co-Personal Representatives and Co-Trustees. This can be beneficial or
detrimental to the administration, depending upon the dynamics between the co-fiduciaries.
In the absence of will or trust provisions providing otherwise, or delegations between and
among co-fiduciaries, the following default rights and duties apply:
a. Co-Personal Representatives.
i.
Powers: Joint Personal Representatives generally have the right to act
individually when exercising any powers of estate administration, except in
limited circumstances (i.e. institution of a suit on behalf of the estate,
employment of an attorney, carrying on the business of the deceased, voting
of corporate shares of the estate). I.C. § 29-1-10-10.
ii.
Duties: A Co-Personal Representative is liable for any loss to the estate
arising from wrongful acts or omissions of the Co-Personal Representative(s)
which he or she could have prevented by the exercise of ordinary care. I.C.
§29-1-16-1. Accordingly, it can be inferred that Co-Personal Representatives
have a duty to exercise ordinary care to prevent wrongful acts or omissions of
their counterparts.
b. Co-Trustees.
i.
Powers: When a power is vested in two (2) Trustees, such power must be
exercised by them jointly. When there are three (3) or more Trustees, a
majority may exercise a power. I.C. § 30-4-3-4.
ii.
Duties: If there are multiple Trustees, each has a duty to participate in the
administration of the trust, take any reasonable action to prevent a Co-Trustee
from committing a breach of trust, and take whatever action is reasonable to
compel a Co-Trustee to redress a breach of trust. I.C. § 30-4-3-8.
5. THE UNIFORM PRUDENT INVESTOR ACT AND THE UNIFORM PRINCIPAL
AND INCOME ACT. In the last decade, the Indiana Code provisions governing the
discretion, performance measurement, and liability principles applicable to fiduciary
investment practices have been revised. The updated Uniform Prudent Investor Act (the
“UPIA”) and Uniform Principal and Income Act (the “UPAIA”) modernize the criteria for
prudent investing, and provide procedures by which fiduciaries can allocate receipts and
payments to principal and income. The new Acts are designed to work together in promoting
the intentions of testators and settlors, and the interests of beneficiaries. As with their
predecessors, the updated Acts contain default rules, and provisions in governing instruments
remain paramount.
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a. The UPIA [I.C. § 30-4-3.5 et seq.]: The UPIA governs the exercise of investment
discretion by fiduciaries, and implements a “modern portfolio theory” and “total
return” approach to measuring investment performance. By its terms, and pursuant to
I.C. §30-4-3-6, the UPIA applies to Trustees. However, investment discretion
exercised by a Personal Representative may be subject to the UPIA on account of the
incorporation of the rules applicable to Trustees’ investments under § 29-1-13-14.
i.
Trustees are subject to the Prudent Investor Rule (the “Rule”), unless the
terms of a trust provide otherwise. I.C. § 30-4-3.5-1(a). Exculpatory,
exoneration, or authorization provisions can change the standard by which the
Trustee’s actions are reviewed.
ii.
The Rule provides as follows:
I.C. § 30-4-3.5-2
Prudent investor rule
(a) A trustee shall invest and manage trust assets as a prudent investor would, by considering the
purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this
standard, the trustee shall exercise reasonable care, skill, and caution.
(b) A trustee's investment and management decisions respecting individual assets must be
evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall
investment strategy having risk and return objectives reasonably suited to the trust.
(c) Among circumstances that a trustee shall consider in investing and managing trust assets are
those of the following that are relevant to the trust or its beneficiaries:
(1) General economic conditions.
(2) The possible effect of inflation or deflation.
(3) The expected tax consequences of investment decisions or strategies.
(4) The role that each investment or course of action plays within the overall trust portfolio,
which may include financial assets, interests in closely held enterprises, tangible and intangible
personal property, and real property.
(5) The expected total return from income and the appreciation of capital.
(6) Other resources of the beneficiaries.
(7) Needs for liquidity, regularity of income, and preservation or appreciation of capital.
(8) An asset's special relationship or special value, if any, to the purposes of the trust or to one
(1) or more of the beneficiaries.
(d) A trustee shall make a reasonable effort to verify facts relevant to the investment and
management of trust assets.
(e) A trustee may invest in any kind of property or type of investment consistent with the standards
of this chapter.
(f) A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee's
representation that the trustee has special skills or expertise, has a duty to use the special skills or
expertise.
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iii.
Compliance with the Rule is determined in light of the facts and
circumstances existing at the time of the investment decision or action, and
not by hindsight. I.C. § 30-4-3.5-8.
iv.
The UPIA allows greater discretion with respect to diversification (or lack
thereof) and delegation of investment and management functions. I.C. §§ 304-3.5-3, 30-4-3.5-9.
v.
The UPIA requires that a Trustee invest and manage trust assets solely in the
interest of the beneficiaries, and act impartially with respect to multiple
beneficiaries, taking into account any differing interests. I.C. §§ 30-4-3.5-6,
30-4-3.5-5.
b. The UPAIA [I.C. § 30-2-14 et seq.]: The UPAIA applies to every trust or estate
existing on or created after January 1, 2003, except as otherwise expressly provided
by the terms of a trust, will, or the UPAIA. In general, the UPAIA permits a Trustee
to adjust between income and principal (i.e. to allocate income to principal or
principal to income). In accord with long-standing fiduciary principles, the UPAIA
imposes a duty to administer a trust or estate impartially, based on what is fair and
reasonable to all beneficiaries, except to the extent that the terms of a trust or will
clearly manifest a contrary intention.
i.
Beneficiaries of trusts and estates often have competing interests, particularly
when there are income beneficiaries and remaindermen. For example, when a
fiduciary’s total return strategy invests for growth rather than income
production (as permitted under the UPIA), the interests of the income
beneficiaries are reduced, to the benefit of the remaindermen. To remedy this
imbalance, the UPAIA allows a fiduciary to adjust allocations between
income and principal, restoring fairness and satisfying the needs of both
classes of beneficiaries.
ii.
A Trustee must notify beneficiaries of any “proposed action” governed by the
UPAIA, including a course of action and a decision not to take action. Having
given proper notice and received no objections, a Trustee is not liable for
carrying out any proposed actions under the UPAIA. I.C. § 30-2-14-16.
iii.
A fiduciary or beneficiaries may petition the court having jurisdiction over the
trust or estate to settle any disputes regarding actions governed by the UPAIA.
However, a court will not override a fiduciary’s decision unless it constituted
an abuse of discretion. I.C. § 30-2-14-17.
iv.
As an alternative, a Trustee may release his or her power to adjust between
trust principal and income under I.C. § 30-2-14-15, and may convert an
income trust to a unitrust, under I.C. § 30-2-15 et seq.
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6. COMPARISON OF PERSONAL REPRESENTATIVE AND TRUSTEE DUTIES.
DUTIES
PERSONAL REPRESENTATIVE
Imposed by…
Will, Indiana Code, Case Law, Local
Rules
Trust, Indiana Code, Case Law
Owed to…
Taxing authorities, Creditors,
Beneficiaries, Court
Beneficiaries, Court (if trust is
docketed)
Must take possession of all personal
and real property of decedent (I.C.§
29-1-13-1); Must preserve the estate
(I.C. § 29-1-13-2); Must not
commingle estate property (I.C. § 291-16-1)
Must take possession and control
of trust property; preserve trust
property; make trust property
productive for the income and
remainder beneficiaries; keep trust
property separate from Trustee’s
property (I.C. § 30-4-3-6)
Must prepare an inventory within 2
months of appointment (I.C. § 29-112-1)
Must maintain clear and accurate
accounts with respect to the trust
estate (I.C. § 30-4-3-6(b)(6))
With the approval of the court, a
Personal Representative may invest
estate funds to make them productive;
such investments are restricted to the
kinds of investments permitted to
Trustees (I.C. §29-1-13-14); Subject
to the UPAIA (I.C. § 30-2-14-0.1)
Must file account as directed by court,
at resignation, at final settlement (I.C.
§ 29-1-16-3)
Subject to the UPIA (I.C. §30-4-36); Subject to the UPAIA (I.C. §
30-2-14-0.1)
Control and
Protection of
Assets
Recordkeeping
Investment
Accounting
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TRUSTEE
Must give a beneficiary complete
and accurate information
concerning any matter related to
the administration of the trust, and
permit the beneficiary or the
beneficiary's agent to inspect the
trust property, the trustee’s
accounts, and any other documents
concerning the administration of
the trust.(I.C. § 30-4-3-6(b)(7))