Your Fiduciary Duty as a Trustee or Personal Representative: A Guide to Estate Responsibilities

September 26th, 2023 | BY Jen Danko | Financial & Retirement Planning | Succession Planning | Wealth Management | Affordable Housing | Cannabis | Construction | Education | Employee Benefit Plans | Government | Healthcare | High Net Worth | Manufacturing | Nonprofit | Small & Midsize Businesses | Telecommunications
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By: Jen Danko   Being trusted and appointed to the role of a trustee or personal representative of an estate is a lot to comprehend. It comes with significant responsibilities and likely a lot of questions. If you haven’t sat in this seat before, you may not be aware of all the ins and outs you now have in this new role.   Let’s start by answering a fundamental question – What is a fiduciary?   A fiduciary is an individual who is entrusted with managing the affairs of an estate and acting in the best interests of the beneficiaries.   You might now be asking, what does this entail, what will I need to do?  Below is an overview of a fiduciary’s duties and some essential tasks that you will need to be aware of now that you are in this new and trusted role.   

What Steps You’ll Need to Take as a Fiduciary:  

  • Apply for an Employer Identification Number (EIN): 
One of your initial tasks as a trustee or personal representative is to obtain an EIN for the estate or trust. The EIN is necessary for various financial transactions and tax-related matters. You can apply for an EIN online through the IRS website or by submitting Form SS-4. 
  • File the Final 1040 Tax Return: 
Upon the decedent’s death, you must ensure the final individual income tax return (Form 1040) is filed for the deceased. This return covers the period from January 1 of the tax year to the date of death. It is crucial to accurately report all income and deductions, and any taxes owed must be paid from the estate’s assets. 
  • Determining Probate Proceedings: 
Next, you need to assess whether probate proceedings are necessary.   What is a probate hearing?   A probate hearing is the legal process that distributes property and assets after someone dies. Probate requirements vary by jurisdiction, but generally, decedents who passed away with assets held in their sole individual name can require some version of the probate process. Consult with an attorney to understand the specific probate laws in your jurisdiction and determine if a probate case needs to be filed. high net worth couple enjoying retirement
  • File Trust/Estate Tax Returns: 
Depending on the size and nature of the estate or trust, you may be required to file specific tax returns. For example, estates exceeding certain thresholds may need to file a federal estate tax return (Form 706), while trusts and smaller estates might need to file only a federal income tax return (Form 1041). Consult with a tax professional to ensure compliance with all tax obligations. 
  • Open New Bank Accounts: 
To facilitate efficient management of the estate’s finances, you should open a new bank account in the name of the trust or estate using the EIN you obtained. This account will be used to receive income, pay expenses, and distribute funds to beneficiaries. Keeping estate assets separate from personal assets is essential for accurate accounting and administration.    

What are my Duties as a Fiduciary? 

  • Complying with the Terms of the Trust: 
As a trustee, it is your fiduciary duty to carefully review and understand the terms of the trust. The trust document outlines the specific instructions and guidelines for managing the assets and making distributions to the beneficiaries. It is essential to understand these terms and act in accordance with the wishes of the grantor. 
  • Valuing and Managing Assets: 
As a fiduciary, you have a duty to identify, value, and manage the estate’s assets appropriately. This involves gathering information about the decedent’s financial holdings, such as bank accounts, investments, real estate, and personal property. Professionals like appraisers or financial advisors can help ensure accurate asset valuation. 
  • Paying Debts and Expenses: 
Before making any distributions to beneficiaries, it is crucial to satisfy the decedent’s outstanding debts, including funeral expenses, medical bills, and any outstanding taxes. Careful accounting of these payments should be maintained to demonstrate diligent administration of the estate. 
  • Communicating with Beneficiaries: 
Staying in contact with the beneficiaries about the estate’s progress is an important aspect of your fiduciary duty. Regular communication helps manage expectations, provide transparency, and address any concerns they may have. Make sure to document all interactions with beneficiaries to maintain a record of your communication efforts.    

How Maner Costerisan Can Help 

Serving as a trustee or personal representative of an estate carries significant responsibilities and requires careful attention to detail to ensure you are doing the grantor justice and fulfilling their wishes.   If you find yourself overwhelmed by this new role and would like the advice of professionals, the team at Maner Costerisan is here to help ease your mind. We have accountants and financial advisors who can help advise you through this process and make sure that your duties in these areas are fulfilled so you can continue to protect the assets the grantor has entrusted to you.   Contact Jen Danko, CPA, Principal, with any questions you might have on fiduciary or trustee responsibilities and estate planning at jdanko@manercpa.com or by calling 517-323-7500.