By the very nature of their profession, Fiduciaries are often asked to step into the shoes of another individual, essentially becoming that person's alter ego for decision making purposes. This can occur not only for those who are alone in the world, but for folks with caring family members as well. Andrew R. Jones, Esq. and Florence N. Lishansky, Esq. of Furman Kornfeld & Brennan, U.S. claims counsel for the Lloyd's of London, commented on this dynamic in their recent article Fiduciary Professional Liability Insurance -- Evolution of a Need:
Numerous seniors with family willing to assist them still prefer to appoint a Professional Fiduciary -- to avoid inconveniencing family members who may be already burdened by work and home responsibilities, or may not live near the senior. In all roles, Fiduciaries are expected to act in the best interests of their clients and manage affairs solely for the benefit of the client and not for others. The element of trust becomes crucial when the person receiving fiduciary services is frail, incapacitated, or vulnerable. Most conflicts, however, arise from disputes about whether decisions were truly made in the best interests of the client and, based on our experience, are generally raised by third parties (e.g. family members unsatisfied with how the senior's care and/or finances are being managed) as opposed to by the senior themselves.Having handled numerous fiduciary liability claims, Jones and Lishansky have often found themselves in front row seats to the "family feuds" that can and often do ensue:
Conflicts between siblings or other relatives often place the Fiduciary in the middle of family feuds and typically make the Fiduciary an easy target to lay fault on. Claims against Fiduciaries may stem from allegations of inadequate supervision of a vulnerable adult, charging excessive fees, refusal to issue a distribution from a trust, and/or failure to safeguard funds or property of the client. We have encountered claims wherein one family member may retain a Fiduciary to perform services while another family member will file a breach of duty claim or allege a different type of fault committed by the Fiduciary. Frequently, the Fiduciary is free of fault but is nonetheless forced to defend his or her retention and innocence through litigation.
Because of this potential for internecine squabbles, Fiduciaries should take care to fully assess prevailing dynamics before allowing themselves to become "adopted" into a new family. Also maintaining a courteous, even-handed and responsive professional relationship with family members can help reduce tension as well as the impression of playing favorites.
Retaining competent professionals to aid in meeting the needs of a ward or conservatee can also go a long way towards reducing a Fiduciary's potential liability. In this vein, consider the following claim scenario Jones and Lishansky have repeatedly encountered of late:
Recently, we have seen a number of claims filed against Fiduciaries for failing to properly invest funds or for investing funds in the "wrong" stocks, despite the common downward trend in the stock market. We have seen these claims alleged by wards, distributees, and the Court itself prior to approving of a Fiduciary's accounting. These claims try to seek justification and compensation for the downward market trend and put the Fiduciary in a position wherein they are forced to somehow "guarantee" situations which are out of their control.
Fiduciaries are especially exposed to this type of claim when they take on too much of the "hands-on" estate management. Ideally, a Fiduciary should function as a "broker" of services -- performing due diligence background checks and then relying on vetted professionals' advice. In a case such as the foregoing, the Fiduciary should be able to rely upon an investment counselor's liability insurance and hold harmless indemnification agreements where possible. Verifying this kind of back up protection should be a routine part of any due diligence inquiry.
In their article, Jones and Lishansky also highlight another potential area of exposure:
Claims for breach of duty against Fiduciaries are common once the Fiduciary submits its accounting for approval, as any party may question whether a decision was in the best interests of the client. Additionally, in situations where a client has multiple children, claims may arise from sibling disagreement on what the Fiduciary's role and responsibilities should entail.
Because formal accountings occur infrequently, the potential for sticker shock is greater than if invoices were issued on a quarterly, monthly or other frequent basis. Some of the visceral reaction to a large accounting bottom line could possibly be blunted by regular communications. This would allow for objections to be addressed throughout the course of the representation rather than all at once a year or more down the road.
One final consideration regarding the prudence of practicing one's profession "defensively" appears in the following episode recounted by Jones and Lishansky:
One recent claim was raised by the niece of the Court-Appointed Fiduciary's client after the client was deemed incapable of taking care of herself by the state. The Fiduciary placed the client into a private care facility believing that this was in the best interests of the ward. The ward's niece opposed her Aunt's placement into the facility by petitioning the Court to become her Aunt's Guardian. After the Court granted the niece control over the person and property of her Aunt, the niece filed a breach of fiduciary duty claim against the Fiduciary on behalf of the ward.
Documentation of the efforts taken and factors considered in reaching any major decision in a fiduciary capacity can be crucial in defending a Fiduciary's actions well after the fact. It just makes sense to assume that any decision may well be subjected to a high level of scrutiny and possibly criticism. Again, so long as a Fiduciary can produce credible evidence of due diligence investigations and inquiries, the defense of subsequent courses of action becomes much easier.
In sum, Fiduciaries should become acquainted not only with the intended conservatee, but with family members as well, before taking the plunge into a new family relationship. Neglecting this process could be courting disaster. Once engaged, a Fiduciary would do well to establish and use good channels of communication to all interested family members, providing regular feedback and reporting. The same should be required of any other fully vetted professionals the Fiduciary might employ to address a client's needs. The aim is family harmony, not discord. We want the Waltons, not Archie Bunker's clan. Goodnight Johnboy ;)